The 100 Top Brands 2006
Here's how BusinessWeek & Interbrand calculate the power in a name

INTERBRAND TAKES lots of ingredients into account when ranking the world's most valuable brands. To even qualify for the list, each brand must derive about a third of its earnings outside its home country, be recognizable outside of its base of customers, and have publicly available marketing and financial data. One or more of those criteria eliminate such heavyweights as Visa, Wal-Mart, Mars, and CNN. Interbrand doesn't rank parent companies, which explains why Procter & Gamble doesn't show up. And airlines are not ranked because it's too hard to separate their brands' impact on sales from factors such as routes and schedules.

BUSINESSWEEK CHOSE Interbrand's methodology because it evaluates brands much the way analysts value other assets: on the basis of how much they're likely to earn in the future. The projected profits are then discounted to a present value, taking into account the likelihood that those earnings will actually materialize.

THE FIRST STEP IS figuring out what percentage of a company's revenues can be credited to a brand. (The brand may be almost the entire company, as with McDonald's Corp., or just a portion, as it is for Marlboro.) Based on reports from analysts at J.P. Morgan Chase, Citigroup, and Morgan Stanley, Interbrand projects five years of earnings and sales for the brand. It then deducts operating costs, taxes, and a charge for the capital employed to arrive at the intangible earnings. The company strips out intangibles such as patents and management strength to assess what portion of those earnings can be attributed to the brand.

Smithfield buys ConAgra meats for $575 million

For the second time this summer, Smithfield Foods Inc. has swept into the Chicago area to purchase a meat producer.

The Smithfield, Va.-based company on Monday announced it had reached agreement with ConAgra Foods to purchase its Naperville-based meats division and the Butterball, Eckrich and Armour brands for $475 million in cash and $100 million in Smithfield stock.

It was similar to the price that Smithfield paid for the European meats division of Sara Lee Corp., which, like ConAgra, is restructuring its operations. Sara Lee is to receive $575 million when that transaction is completed.

Both sale prices were lower than Wall Street had expected. ConAgra's meat division had sales of $1.8 billion, while Sara Lee's meat division had sales of $1.1 billion.

"We have a reputation for making opportunistic acquisitions, as was this one and the Sara Lee acquisition," said Jerry Hostetter, a spokesman for Smithfield, the world's largest pork producer.

Under the deal, which must be reviewed by government antitrust regulators, Smithfield is acquiring 16 ConAgra meat plants and the Naperville headquarters operation.

Hostetter said no decision had been made about the 6,000 people employed by the division and the 100 at the headquarters, but Smithfield historically has left the management and employees in place at the companies it has purchased.

He said Smithfield would combine the management of the Butterball turkey business, which it valued at $325 million, with Carolina Turkeys, a business it co-owns with Maxwell Farms Inc. Butterball is the No. 2 U.S. turkey producer, with sales of about $600 million annually. Carolina Turkeys is the fourth-largest turkey producer in the United States.

The combination is likely to pressure Hormel Foods Inc. and the turkey products it produces under the Jennie-O Turkey Store brand. Although Jennie-O currently is the largest, the combined sales of Carolina Turkey and Butterball will surpass Jennie-O.

"For Smithfield this is a big deal," said Greggory Warren, a food analyst with Morningstar Inc., a Chicago-based market research company. "This moves them up the value chain. They might actually make [profit] margins of 6 percent or 8 percent, and that's up from 3 percent to 4 percent."

C. Larry Pope, president and chief operating officer of Smithfield, confirmed that is the company's strategy. "This continues our previously announced strategy of utilizing our superior raw materials internally as opposed to selling in the commodity market," he said. "These brands will allow us to capture sales and marketing opportunities and more fully serve the needs of our retail and food service customers."

Warren said however, that Smithfield would face many of the same problems that were confronting ConAgra and Sara Lee--increased competition in the packaged meat aisle.

"There is a lot more competition coming online. Within the past 10 years, Hormel, Tyson and Perdue have been moving up the value chain to become packaged meat processors, and that just increases the competitive level within the industry," he said.

Despite those issues, both Warren and David Nelson, a food analyst with Credit Suisse, believe Smithfield is well-positioned to integrate the ConAgra operation.

"Though Smithfield has a lot to digest, we believe Smithfield continues to value its acquisition targets prudently and with a compelling strategy in place," said Nelson.

Church & Dwight buys Orange Glo for $325M

Church & Dwight Co., the maker of Arm & Hammer baking soda and other household products, agreed to acquire Orange Glo International, a privately held maker of household cleaning products, for $325 million

Princeton, N.J.-based Church & Dwight said the acquisition of Orange Glo would complement its Arm & Hammer and Xtra laundry brands, and give it access to the fast-growing additives segment of the laundry category. Church & Dwight said it would finance the deal with a $250 million addition to its bank credit facility and available cash. The transaction is expected to close during this year's third quarter, pending regulatory and other customary approvals.

Orange Glo makes OxiClean, a pre-wash additive that helps remove stains, Kaboom bathroom cleaner and Orange Glo household cleaner products. The Greenwood Village, Colo.- based company in 2005 reported operating profit before charges of $17 million, on sales of nearly $200 million.

Church & Dwight backed its 2006 financial forecast of $1.93 per share, excluding any effect from the acquisition, which is expected to have a “slightly negative” effect on earnings per share.

Hershey appoints new Finance VP

The Hershey Company has appointed Humberto Alfonso as vice president of finance and planning for the confectionery firm's US commercial group, effective July 17, 2006.

In his new position, Mr Alfonso will report to David West, the company's senior vice president and CFO, and will support Christopher Baldwin, senior vice president of Hershey's US commercial group.

Mr Alfonso will assume overall responsibility for providing finance and planning support to the group. He will provide business insight and analysis to help further Hershey's value-enhancing strategy.

In the announcement, Mr West said: "Bert brings more than 20 years of financial leadership across all areas of finance, including treasury, business support and supply chain. He has extensive international experience as well as a deep understanding of the snack market.

"Throughout his career, he has maintained a strong focus on driving profitable growth, and he will play a key role in providing the financial insights, analysis and tools to help Hershey realize the opportunities in the US confectionery and snack markets."

Mr Alfonso joins Hershey from Cadbury Schweppes, where he was executive vice president of finance and CFO for Americas Beverages. He led all finance and information technology functions for the US, Canada, Mexico and the Caribbean region.

Mr Alfonso joined Cadbury Schweppes in 2003 as vice president of finance. In this role, he was based in London with responsibility for developing financial and strategic aspects of the company's global supply chain, including logistics, procurement and sourcing.

Prior to joining Cadbury Schweppes, Mr Alfonso was vice president and CFO for the Adams division of Pfizer. From 1983 to 2000, he worked in a variety of financial leadership positions at Warner Lambert, most recently as vice president and international treasurer.

The largely noncash transaction is valued at $1.1 billion, including Kraft's assumption of some debt and the return of its 25% stake in United Biscuits back to the company. Further financial details couldn't be learned.

The deal with United Biscuits will give Kraft control of brands like Triunfo cookies in Portugal and HobNobs in Spain. It will also allow Kraft to regain control of brands like Ritz in Europe.

Kraft, Northfield, Ill., is the world's second-largest food company by sales with brands like Maxwell House coffee and Oscar Mayer meats. The company, which has faced increased competition from private-label products in the U.S., ousted its chief executive, Roger Deromedi, and installed former Kraft executive Irene B. Rosenfeld last month.

Under Ms. Rosenfeld, the company is expected to accelerate its push for new brands as it seeks to boost its top-line performance. The company hasn't had many home-grown hits in recent years and is hungry for new innovations.

To a certain degree the company has been constrained by its capital structure from making large acquisitions. Some 88% of Kraft's stock is owned by Altria Group, maker of Marlboro cigarettes and other products. Altria has indicated it would consider spinning off this interest in Kraft once certain tobacco-related litigation has been resolved.

Miller to Buy 'Energy Beer' Brands From McKenzie

SABMiller PLC of London said it reached an agreement with McKenzie River Corp. to acquire its caffeine-laced "energy beer" Sparks and Steel Reserve brands for $215 million, in a move designed to lure young drinkers of Starbucks Corp.'s frappuccinos and energy drinks like Red Bull.

The move is almost certain to intensify the battle that is brewing over a small but growing part of the lackluster American beer market: energy beer. These beers, which often include caffeine and caffeine-like substances, have been surging in popularity. Sparks is a caffeinated alcohol malt beverage flavored with ginseng, guarana and taurine and has a citric taste. Steel Reserve is a lager beer.

Demand for energy beers appears strong. SABMiller's Miller Brewing Co. says the Sparks brand, for instance, had a compound annual growth rate of 107% between 2003 and 2005. Last year, it sold 270,000 barrels of the product. The acquisition from McKenzie River, San Francisco, expands Miller's portfolio of energy beers. It already markets Mickey's Stinger, a malt liquor that features more caffeine than a cup of coffee, and two caffeine-like substances: guarana and taurine. Malt liquors generally have more alcohol than beer. Mickey's, for instance, has 7% alcohol by volume, compared with 4.5% that is typical of most American beers. "Sparks and Steel Reserve will have an immediate positive impact on our growth profile," said Norman Adami, president and chief executive of Miller Brewing.

The companies plan to announce the deal today.

U.S. brewing titan Anheuser-Busch Cos. offers two different beers -- Tilt and B(e) -- with caffeine, ginseng and guarana. Anheuser is also test-marketing another caffeinated beer, Natty UP. The category has attracted a number of recent entrants. One new energy beer is Moonshot, produced by a small Boston company, New Century Brewing Co. Moonshot was introduced in 2004 and has since been reformulated, company CEO Rhonda Kallman said. "High-volume domestic beer drinkers are looking for a pick-me-up, particularly after drinking several. And...their preference is to stay in beer." So she reformulated Moonshot and added more caffeine. The total now is 69 milligrams, which she says is about equal to a cup of coffee.

Sparks and Steel Reserve are already brewed by Miller under an agreement with McKenzie River. Miller said completion of the transaction is subject to review by U.S. antitrust authorities. Miller also agreed to develop new products with McKenzie River founder and President Minott Wessinger.

Critics say energy beers simply serve to mask underlying intoxication. "I think it's just another clear way to keep people drinking more," says George Hacker, director of the alcohol policies project at the Center for Science in the Public Interest, a nonprofit advocacy organization.

Kraft Foods Inc. names Irene Rosenfeld as its new chief executive officer, replacing Roger Deromedi after a long period of sluggish results at the nation’s largest food company. Rosenfeld most recently was chairman and CEO of Frito-Lay, a division of PepsiCo. Deromedi, a 28-year veteran of Kraft, had been sole CEO of the company since December 2003. He previously was co-CEO with Betsy Holden, who subsequently was removed and put in charge of global marketing.

J&J to buy Pfizer Consumer Health for $16.6 Billion

Johnson & Johnson announced Monday it agreed to purchase a stable of household consumer brands from Pfizer Inc. for $16.6 billion.

Over the weekend, J&J was locked in a bidding war with British pharmaceutical company GlaxoSmithKline PLC, and it is still possible the final results could change if Glaxo re-emerges, a person familiar with the matter said.

J&J, Glaxo and the United Kingdom's Reckitt Benckiser PLC have been keen to purchase Pfizer's consumer brands, which include such products as Bengay pain-relieving cream, Visine eyedrops and Sudafed cold tablets.

Wall Street values consumer-products companies at a price-to-earnings ratio of about 20 times, compared with about 15 times for pharmaceutical companies. That made it attractive for Pfizer to sell the brands, and it appears to have exceeded its original price expectations of about $14 billion.

Patent expirations on Pfizer medicines and generic versions of rival drugs have put pressure on the company, still the largest seller of prescription medicines in the world by sales, to shake up its business. Sales from Pfizer's consumer products rose 10% last year to $3.88 billion, while prescription-drug sales declined 4% to $44.28 billion. Pfizer's shares ended Friday at $22.64 in composite trading on the New York Stock Exchange, compared with a 52-week high of $28.17 reached about a year ago.

With the New York company's stock depressed, management boosted its dividend, stepped up the repurchase of shares and embarked on a campaign to cut $4 billion in costs. The sale of the consumer-health unit was billed by management as another way to increase the value of shareholders' stake in the company.

J&J, of New Brunswick, N.J., is struggling with its own slowing sales growth, particularly for pharmaceuticals. This year could snap the company's streak of double-digit percentage sales and profit gains. A serial acquirer, J&J prowls constantly for deals to boost growth. This search led J&J to bid for defibrillator maker Guidant Corp. but the offer was trumped by Boston Scientific Corp. earlier this year. J&J executives said the company expects sales to rise 6% to 8% in 2005 -- far less than the 12% compound annual growth rate for the decade ended in 2004.

By snaring Pfizer's consumer-health business, J&J would reduce its reliance on prescription drugs for sales and profits. As much as Pfizer seems intent on focusing almost exclusively on those products, J&J executives have long preached the virtues of diversification, another reason they had been interested in buying Guidant.

Alberto-Culver spins off Sally Beauty-Again
 
Alberto-Culver Co. yesterday announced its intention to separate the company's consumer product business from its beauty supplies distribution business, Sally Beauty Co.

Under the plan, which has been unanimously approved by the Alberto-Culver board of directors, the company's shareholders will receive a special $25 per share one-time cash dividend for each ACV share. In addition, when the transactions closes, Alberto-Culver Co. shareholders will own one share of Alberto-Culver stock and one share of Sally Beauty Co. stock for each ACV share held.

Alberto-Culver Co. shareholders will own approximately 52.5 percent of the shares of Sally Beauty Co. which will become a new public company listed on the New York Stock Exchange.

An investment fund managed by Clayton, Dubilier & Rice will invest at least $575 million to acquire an equity stake of approximately 47.5 percent in Sally Beauty Co. Approximately $1.85 billion of new debt will be arranged by Merrill Lynch. These combined amounts will be used to fund the special $25 per share cash dividend.

Sally Beauty Co. will become a standalone publicly traded company with its 2,465 Sally Beauty stores, 825 Beauty Systems Group outlets and an 1,181-person direct sales force calling directly on its salon customers. Sally generated revenue of $2.3 billion for the year ended March 31, and had pre-tax operating earnings of $244 million.

Gary Winterhalter will continue as president of Sally Beauty Co. and following the separation, will assume the chief executive officer role and will join the Sally Beauty Co. board of directors. Sally Beauty Co. chairman Michael Renzulli has entered into a three-year consulting agreement with Sally Beauty Co. CD&R will designate six of the 12 directors to be appointed to the Sally Beauty Co. board, including the chairman.

Alberto-Culver will be a global branded consumer products company with brands such as Alberto VO5, St. Ives, TRESemme, Nexxus, Motions and Soft & Beautiful and a portfolio of regional brands in the beauty and household categories. The current operating management team for Alberto- Culver Consumer Products Worldwide will remain in place, according to the company. The consumer products unit generated revenue of $1.4 billion for the year ended March 31, and had pre-tax operating earnings of nearly $140 million.

Carol Lavin Bernick will continue in her role as executive chairman of the board of the Alberto-Culver Company.

After the closing, James Marino will become Alberto-Culver's president and chief executive officer and will join the Alberto-Culver Co. board. He is currently president of Alberto-Culver Consumer Products Worldwide.

Howard B. Bernick, Alberto-Culver president and chief executive officer, will retire from his position at Alberto-Culver and from the Alberto-Culver board of directors after the spin-off is accomplished.

Bernick said the two businesses have faced growth constraints caused by customer and vendor conflicts between the units which will now be eliminated.

"I believe the growth potential for an independent consumer products group and an independent Sally Beauty Company should provide substantial benefits for the shareholders of both companies," Bernick said.

The transaction is expected to be completed in the fourth quarter of the 2006 calendar year subject to customary closing conditions, shareholder approval, the obtaining of a ruling from the Internal Revenue Service and other regulatory approvals.

Nestle to buy Jenny Craig for $600 million

In a new twist in corporate synergy, Nestle AG, the world's biggest food and drink company, said Monday it will fatten up its weight-loss business by buying Jenny Craig Inc. for $600 million.

The current management team of Jenny Craig, which is based in Carlsbad, Calif., will continue to run the business and report directly to Nestle, the Swiss company said in a statement.

Nestle is buying Jenny Craig -- which employs more than 3,000 people -- from two private equity groups, ACI Capital and MidOcean Partners. The transaction is expected to close in the third quarter, the private equity firms said in a statement.

Weight management will become a new business within Nestle's nutrition unit and will reinforce its U.S. presence. The Swiss company already owns the Lean Cuisine line of foods.

"With this strategic acquisition, the group takes another important step in its transformation process into a nutrition, health and wellness company," said Nestle Chairman and Chief Executive Peter Brabeck-Letmathe.

"The rise of obesity and the resulting metabolic disorders, such as diabetes and cardiovascular disease, is a major public health concern, not only in the USA but also the world over," Brabeck-Letmathe said.

Jenny Craig, which has more than 600 weight-loss centers in the U.S., Canada, Australia and New Zealand, generated sales of more than $400 million in the past 12 months and achieved double-digit internal growth.

Nestle shares gained 1 percent to 369.75 Swiss francs ($300.38) in Zurich trading.