Del Monte Foods buys Meow Mix for $705M

Del Monte Foods buys Meow Mix for $705M

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.