TreeHouse Foods Inc. will buy Del Monte Foods BU

TreeHouse Foods Inc. will buy Del Monte Foods BU

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

Wednesday, March 01, 2006

By Teresa F. Lindeman, Pittsburgh Post-Gazette

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.