A KKR & Co-led group agreed to acquire Del Monte Foods Co in a $4-billion transaction that would give the New York buyout company pet-food brands like Meow Mix and Kibbles ’n Bits.
KKR, Vestar Capital Partners and Centerview Partners will pay $19 a share in cash, San Francisco-based Del Monte said in a statement yesterday. That would be 21 per cent higher than the closing price in November 18, the day before takeover talks were reported. The buyers will assume about $1.3 billion in net debt.
The deal brings KKR a pet-food business whose sales have more than doubled in the past four years, bolstered by the purchase of cat-food labels and Milk Bone dog treats. The unit’s revenue climbed 4.6 per cent last year, more than twice the rate of the unit that produces canned fruit, accounting for almost half Del Monte’s $3.74 billion in total revenue.
“Del Monte has a history of success in its fruit and vegetable offerings; unfortunately, that is the half of the company that has seen its fortunes fall during the down economy,” Marcia Mogelonsky, an analyst at Mintel International in Chicago, said in an interview. “KKR and other potential buyers are more likely to be looking to grow the pet- food products than the fruit and vegetables, as the recession seems to have been kinder to dogs and cats than to humans.”
Del Monte rose 5.5 per cent to $17.99 in New York Stock Exchange composite trading on November 24. The shares have climbed 59 per cent this year.
Del Monte said it was canceling its December 2 conference call to discuss fiscal second-quarter results.
Nestle, P&G
KKR, run by Henry Kravis and George Roberts, isn’t alone in pursuing pet foods this year. Nestle SA, the world’s largest food company, bought dog-snack maker Waggin’ Train LLC from private equity firm VMG Partners in September, and in May, Procter & Gamble Co agreed to acquire closely held Natura Pet Products Inc.
The pet-food unit’s share of Del Monte’s total sales has grown to 47 per cent in the 12 months ended April, from 29 per cent in 2004-05. Sales derived from pet products more than doubled in the five years through April, compared with a 3.4 per cent decline for the rest of the business, according to data compiled by Bloomberg.
More than 60 per cent of US households have at least one pet, according to the American Pet Products Association.
Market share
The US pet-food market grew 26 per cent to $18.9 billion from 2005 to 2010, according to data tracker Euromonitor International in Chicago. Del Monte has a 9 per cent share, placing it fifth behind Nestle, Mars Inc, Procter & Gamble, and Colgate-Palmolive Co, Euromonitor said.
The consumer business accounts for the rest of Del Monte’s revenue. That division is likely to face challenges in the first half of the year, CEO Richard Wolford said on a September conference call. More than 90 per cent of Del Monte’s sales are generated in the US.
The buyout of Del Monte by KKR follows other private- equity food deals and speculation. On November 5, Lion Capital LLC of London said it would acquire canned-seafood maker Bumble Bee Foods LLC from New York buyout firm Centre Partners Management LLC for $980 million.
Del Monte and KKR’s history together goes back at least two decades, when the New York firm sold the canned-food business after its $25 billion buyout of RJR Nabisco.
Buyout companies use a combination of their own funds and debt to pay for takeovers and then seek to improve profit by boosting sales, selling assets and cutting costs. The firms typically sell the companies within five years.
In 2006, buyout firms TPG Capital and Leonard Green & Partners LP agreed to buy Petco Animal Supplies Inc., the largest US pet-care industry deal in the past five years. The transaction, whose premium amounted to 48 per cent, valued the company at about 7.9 times earnings before interest, taxes, depreciation and amortisation, according to data compiled by Bloomberg. The two firms also teamed up Nov. 23 on a bid to take clothing retailer J Crew Group Inc private.
