ConAgra dividend cut; more to be sold

Del Monte to buy Milk-Bone from Kraft for $580 million

Del Monte Foods Co. announced its second pet food acquisition in just two weeks on Thursday when it said its fully-owned unit, Del Monte Corp., would buy some of Kraft Foods Global Inc.'s pet food products, including the Milk-Bone brand, for $580 million.

The company said the effective cost of the acquisition will be offset by close to $125 million of future tax benefits, which Del Monte expects to achieve as a result of the acquisition. "For Kraft it is definitely a non-core business for them and they were looking to get rid of it. For Del Monte, I think the assets are certainly attractive, but we think the price paid was a bit too expensive," said Longbow Research analyst Alton Stump.

Del Monte -- whose pet food brands include 9Lives, Snausages and Kibbles 'n Bits -- said it sees the transaction as being dilutive to earnings in fiscal 2007, but expects it to be "meaningfully accretive" to earnings in fiscal 2008.

But the company said the acquisition will increase Del Monte's overall gross margin. Pet food typically has higher profit margins than some of Del Monte's other businesses.

On March 2, Del Monte said it would buy cat-food maker Meow Mix Holdings Inc. for $705 million and sell its private-label soup and baby food businesses to focus on its higher-margin branded businesses.

The two acquisitions add heft to Del Monte's pet food business, which could help it compete with larger companies like Nestle SA that makes Purina pet food and Mars Inc., maker of Whiskas.

The Milk-Bone brand, which includes a wide variety of biscuits and treats for pets, generated close to $180 million in net revenue in 2005, Kraft said in a separate release.

For Kraft, the sale of the Milk-Bone brand continues to be a strategy of selling off non-core businesses to focus on products such as Oreo cookies, South Beach Diet foods and Kraft cheese.

Kraft said it sees an asset impairment charge of about 4 cents a share in the first quarter and expects an additional tax expense of 3 cents on closing the deal, adding up to a 7 cent negative impact on 2006.

Kraft forecast ongoing dilution of 2 cents a share.

Del Monte Foods expects to fund the Milk-Bone acquisition with additional debt and added it sees debt levels returning to the current and targeted range within the next three years.

Del Monte's stock was up 1.4 percent at $11.22, while Kraft shares were down 7 cents at $30.07 in morning trading on the New York Stock Exchange.

Krispy Kreme names Kraft's Brewster CEO

Krispy Kreme Doughnuts Inc. named Daryl Brewster chief executive officer as it tries to rebound from accounting investigations and a slump in sales. The shares had their biggest rise in more than a year.

Brewster, 49, joins the second-largest U.S. doughnut chain after heading Kraft Foods Inc.'s North American snacks and cereals unit. He will replace Stephen Cooper, who became interim CEO in January 2005.

Krispy Kreme is shedding stores and restructuring operations after expanding too fast following a public offering in 2000. The company ousted CEO Scott Livengood and six other executives last year during an internal probe that found they may have inflated earnings to beat forecasts. The U.S. Securities and Exchange Commission and federal prosecutors are investigating Krispy Kreme's accounting for the repurchase of franchisees.

``How sweet it is. Here we have a heavyweight coming in,'' said Buzz Zaino, who oversees $2.8 billion including about 1 million Krispy Kreme shares at Royce & Associates LLC in New York. ``This is inherently a good business with a good product. It simply has to be managed properly.''

Shares of Krispy Kreme rose $1.03, or 16 percent, to $7.42 at 10:35 a.m. in New York Stock Exchange composite trading. That's the biggest rise since March 4, 2005, when the shares gained 25 percent. Before today, the stock plunged 87 percent since peaking in August 2003.

At Kraft, Brewster was responsible for over $6 billion in revenue and 20,000 employees as president of the snacks and cereals businesses in the U.S. and Canada, Winston-Salem, North Carolina-based Krispy Kreme said today in a statement.

Turning around Krispy Kreme involves getting ``the business up to the standards of the brand,'' Brewster said in an interview today.

``It tried to grow too fast,'' Brewster said. Under Cooper, Krispy Kreme ``has started to take the steps that are necessary to stabilize and turn around as we move forward. This sets the stage for what will hopefully be further growth for us.''

Brewster, a Newark, New Jersey native, said he brings from Kraft, the largest U.S. foodmaker, a ``real understanding of consumers, marketing and general management skills and leadership skills to rally'' employees and franchisees.

Krispy Kreme said today Cooper will remain with the company for a short time as chief restructuring officer.

After selling shares to the public six years ago, the company expanded rapidly. It had 144 locations in 2000 and now has about 320 stores.

The company hasn't reported earnings for five quarters and faces possible delisting by the New York Stock Exchange. Investors are also suing Krispy Kreme, alleging the company shipped more doughnuts than supermarkets could sell to meet profit expectations and mask slowing sales.

Livengood was removed after the federal investigations prompted the company to start its own probe. At the same time, the company hired Cooper, who led Enron Corp. out of bankruptcy, to succeed him. It also rehired Cooper's restructuring firm Kroll Zolfo Cooper LLC.

In August 2005, a report from a special committee of Krispy Kreme's board said Livengood and other officers may have inflated earnings to meet Wall Street's expectations.

The 250-page report said ``the number, nature and timing of the accounting errors strongly suggest that they resulted from an intent to manage earnings.''

In December, the company restated profit after discovering additional accounting irregularities. It said sales declined 24 percent to $130 million in the third quarter and that it had a net loss for the period. It didn't provide full results.

The maker of canned fruit and vegetables and Starkist tuna also said it would sell its private label soup and Nature's Goodness baby food business to TreeHouse Foods, a supplier of pickles and non-dairy creamers, for $275m.

The purchase of Meow Mix, the number two dry cat-food in the US by sales, comes three years after The Cypress Group, a private-equity group, bought the company for $425m.

Del Monte's acquisition is another sign of food companies' efforts to move into higher-margin businesses as selling basic food products profitably gets harder amid private label competition and high energy and commodity prices.

The Meow Mix purchase and the sale of the private label soup business were expected to increase Del Monte's branded sales to approximately 85 per cent of total net sales from about 80 per cent.

Richard Wolford, Del Monte chairman and chief executive, said: "The transactions streamline our company around our branded US retail 'go-to-market' platform, eliminate a parallel private label platform and reduce total SKUs (stock taking units) by close to 40 per cent."

"The divestiture of our private label soup and infant feeding businesses enables us to focus innovation initiatives and financial resources against faster-growing, margin-enhancing branded businesses that share a common go-to-market platform," he said.

The Meow Mix acquisition adds to Del Monte's existing 9Lives wet cat food, Kibbles 'n Bits dog food and Wagwell chewy dog snacks.

Del Monte said sales at Meow Mix had grown by 10 per cent on average over the last three years, reaching $250m last year. Meow Mix had a 16 per cent share of the US retail grocery market, Del Monte said.

The company believes that the $2.5bn-a-year dry cat food business is growing at about 4 per cent annually.

However Euromonitor, a research firm, forecasts that dry cat food sales will grow by 1.2 per cent over the period 2005-2010.

So-called premium foods and 'functional' foods – such as dog food that helps older animals maintain healthy fur – are growing much faster.

Euromonitor says 'super premium' cat food grew by 41 per cent in the five years up to 2005.

Some analysts questioned the rationale and price for the Meow Mix transaction.

Kenneth Goldman, an analyst at Bear Stearns, said: "Meow Mix is a business that only three years ago was sold for $425m. Granted, its prospects may have brightened since then, but is it worth 65-70 per cent more than it was in 2003? We are not certain. [The agreed price of] $700m would imply a sale price, by our measure, of about 14.5 times ebitda …. This price seems steep."

Del Monte shares were up 4 per cent at $11.35 in morning New York trading.

The Armour Foods business, which includes brands like Armour Vienna Sausage, had sales of some $230 million last year.

"Having evaluated different strategic options, we became convinced that the sale of the foods business was the best solution for our company," Henkel chief executive Ulrich Lehner said. "This step will enable us to concentrate on our core businesses in home and personal care."

Pinnacle Foods, based in Cherry Hill, N.J., also markets Hungry Man frozen dinners, Van de Kamp's and Mrs. Paul's frozen seafood, Duncan Hines baking mixes, Vlasic pickles and Mrs. Butterworth's syrups and pancake mixes.

Lehner described Pinnacle as "a strategic buyer that will offer good prospects for Armour going forward."

Dial, based in Scottsdale, Ariz., has been part of Henkel since March 2004. Henkel said Dial's food division employs about 480 people at the company's site in Fort Madison, Iowa.

TreeHouse Foods Inc. will buy Del Monte Foods private label business unit

Wednesday, March 01, 2006

If Del Monte Foods Co. sells its baby food and private label soup businesses to TreeHouse Foods Inc., as expected, about 600 plant workers at the North Side facility that make the products will answer to their third corporate headquarters in four years.

The boss this time around would be a former Keebler Foods Co. chief executive who is trying to cobble together a profitable company specializing in the private label products that have stymied other industry players.

Sam K. Reed, chairman of the Chicago-based Treehouse, leads a team of management investors who last year devoted $10 million to creating a new public company out of product lines that no longer fit with the strategy of dairy company Dean Foods Co.

In his original letter to TreeHouse shareholders last year, Mr. Reed wrote that the private label food and beverage industry was a $38 billion sector that had grown at about twice the pace of brand-name products in the past six years. Private label products are made to the specifications of retailers such as Wal-Mart or Giant Eagle and sold under their own house brands.

Mr. Reed said the sector, which includes numerous regional and smaller players, should continue to consolidate -- and TreeHouse wants to do some of the consolidating.

The overall food industry has been trading product lines for a while now as companies from Kraft to Hershey to Dean Foods try to find the most profitable combinations in a generally mature -- meaning slower growing -- business.

Pittsburgh's homegrown ketchup company H.J. Heinz Co. was doing just that in 2002 when it sold its U.S. tuna, pet, baby food and private label soup operations to San Francisco-based fruit and vegetable specialist Del Monte. Del Monte officials saw opportunity where Heinz had struggled.

In the last year, Del Monte has said it plans to focus on its well-known brands including StarKist tuna and Kibbles 'n Bits dog food, giving rise to talk that it might, in turn, shed the private label soup operation. Company officials have declined to discuss the rumors.

The most likely potential buyers were believed to be either private equity investors or companies that would see the lines as a strategic fit with their existing businesses. The two companies most commonly mentioned have been TreeHouse and Ralcorp Holdings, a St. Louis company that also likes the private label business. Neither company has been willing to comment.

A Credit Suisse report on TreeHouse acknowledged the ongoing speculation. "No news on the prospects of acquiring private label soup from Del Monte," the analysts wrote in mid-February .

Treehouse hasn't had a lot of time to put its acquisition strategy into place. The company officially went out on its own last June with lines representing about $700 million in sales.

Consumers might recognize some of its products. There's Second Nature liquid egg substitute and Mocha Mix non-dairy creamer.

Its pickle brands include Farmans, Peter Piper and Steinfeld and it sells sauces and syrups under names such as Bennett's.

TreeHouse literature claims it is the largest manufacturer of pickles and non-dairy powdered creamer in the United States based on sales volume, and that was even before it agreed last week to buy a Massachusetts pickle maker.

The pickle business has had issues. The company reported pickle segment net sales dropped 5.6 percent last year at the same time costs were rising, as they have for much of the food industry. TreeHouse decided to close a pickle plant in Colorado.

Mr. Reed said on a recent earnings conference call that addressing those issues took time but the company continues to move ahead with its acquisition strategy.

If TreeHouse does pick up the Del Monte operations it could preserve jobs in Pittsburgh if only because the company does not have existing soup lines that could take over the local operations.

Del Monte, meanwhile, just moved about 600 administrative workers into new regional headquarters on the North Shore. Those jobs could conceivably be kept there as a support system for the company that Del Monte Chairman Richard Wolford has said he wants to grow.

John Tatum named SVP Global Product Supply at Novartis

Novartis Consumer Health Care names John Tatum SVP Global Product Supply at Novartis OTC.

Newell Rubbermaid names new CEO

Housewares maker Newell Rubbermaid Inc. said Tuesday its board named interim Chief Executive Mark D. Ketchum as president and CEO, to replace former Chief Executive Joseph Galli, who resigned in October.

Ketchum, who is also a board member, will continue in that role. The company said that Ketchum, 56, is a 33-year veteran of Procter & Gamble who brings operational, brand management and general management expertise to his new position.

Ketchum is also a director of Hillenbrand Industries Inc., a provider of goods and services for the health care and funeral services industries.

In September, Newell Rubbermaid said it would launch a three-year plan to streamline manufacturing and cut overhead costs, including laying off roughly 5,000 workers. The company also said it intends to shutter one-third of its 80 factories worldwide.

Pfizer to Explore Sale or Spinoff of a Division

February 8, 2006

Pfizer said yesterday that it would explore spinning off or selling its consumer health care division, a unit that had $3.9 billion in sales last year and whose brands include Listerine mouthwash and Benadryl allergy medicine.

Pfizer, the world's largest drug maker, has taken several steps recently to bolster its flagging stock, including raising its dividend and trying to streamline its operations. Spinning off the consumer unit would be another step to please Wall Street, because investors view the division as outside Pfizer's core business of prescription drugs, analysts said.

The unit accounted for less than 8 percent of Pfizer's $52 billion in sales last year, and about 4 percent of operating profit. Based on the price-sales and price-earnings multiples of other consumer products companies, the division could be worth $8 billion or more as an independent company. Pfizer did not disclose whether it expected to lay off any of the division's 3,500 employees as part of a sale.

"It's at the margin," said Robert Hazlett, an analyst at SunTrust Robertson Humphrey. "It's $3 billion and change of a $50 billion company, so it's not inconsequential, but is it critical to the growth of the company going forward? No."

Besides Listerine and Benadryl, the unit's other well-known brands include Rogaine, Zantac, Rolaids, Bengay and Lubriderm. The unit has nine brands with more than $100 million in annual sales, according to Pfizer.

Pfizer made the announcement yesterday afternoon, after the close of trading on the New York Stock Exchange. In after-hours trading, Pfizer shares rose almost 46 cents, or 1.8 percent, to $25.64.

In a statement, Pfizer said it wanted "to unlock the value of the business for Pfizer shareholders at a time when market valuations are attractive for large, high-quality consumer businesses." Pfizer said it had not yet committed itself to selling the unit and could still decide to retain it. But a sale is probable after yesterday's announcement.

The division had $670 million in operating profit last year, Pfizer said. Its sales grew 10 percent in 2005, from $3.5 billion to $3.9 billion.

At a multiple of two times its sales last year, the unit would be worth about $8 billion. At a more aggressive multiple, like 2.5 times sales or 15 times operating profit, it could be worth $10 billion.