Top Food and Beverage Companies for 2008: Succeeding in a Difficult Year

There are a couple of new names on the list … but only new names for old companies.

Swift, which was owned by a holding company, in the past reported some figures to the Securities and Exchange Commission that were public record. But since its mid-2007 acquisition by Brazilian meat processor JBS S.A., and subsequent renaming to JBS Swift & Co. (sometimes referred to as JBS USA), the U.S.’ third largest meat packer has been mum about financials. Following its organic growth in the general press, we assigned it only slight growth for the past year. But next year its sales should climb significantly with the pending purchases of National Beef Packing, Smithfield Foods' beef operations and Five Rivers Ranch Cattle Feeding.

Also semi-new is Dr Pepper Snapple Group. The North American beverage operations of Cadbury Schweppes PLC were spun off into an independent company on May 7. They accounted for $5.7 billion of what last year was $7.6 billion in U.S. and Canadian-based sales of Cadbury Schweppes.

Mergers & Acquisitions: Up and Down

Mergers and acquisitions in the broad food industry increased 5.4 percent in 2007 to their highest level in five years, but activity among true food processors dipped to 94, the same level as 2005 and down from 110 in 2006. In the Food Institute’s annual report, food processors remained the most active category, although just barely outpacing the interest by investment firms and banks. (The 266-page report “Food Business Mergers & Acquisitions” can be previewed and bought from the Food Institute at www.foodinstitute.com/manda.cfm.)

In 2007, the institute’s broad “food industry,” which includes restaurants, retail stores and even suppliers, saw 413 transactions completed during the year and an additional 60 agreed upon but not closed by the end of the year. That’s the highest number since the 487 deals closed in 2001.

Twelve of the categories tracked by the Food Institute saw increases in merger activity, while 11 saw a decrease and four were flat.

For many years, the Food Institute, Elmwood Park, N.J., has published Food Business Mergers & Acquisitions. The institute annually tracks merger and acquisition activity in 27 categories. Most are detailed in the table below, although we have deleted packaging & equipment suppliers and subcategories within restaurants & foodservice, retailers, and wholesalers & distributors.

Within the food processing ranks, multi-product manufacturers again was the busiest sub-category, with 32 deals, down from 43 in 2006. Dairy, brewers-distillers-wineries and “other” also were active subcategories.

Although investment firms mostly targeted restaurants (39 of the 89 transactions), there were some notable acquisitions within the food processing sector. The Blackstone Group, through its affiliates, acquired Pinnacle Foods Group Inc. (Duncan Hines baking mixes, Vlasic pickles, Hungry Man and Swanson frozen dinners) for approximately $2.16 billion in cash. SIG Strategic Investments LLLP acquired substantially all of the assets of U.S. Mills Inc., which markets cereal and snack food brands, including Uncle Sam, Erewhon, Farina, New Morning and Skinner’s.

Some of the biggest deals of 2007:

• The still-brewing merger of the U.S. and Puerto Rican operations of their respective subsidiaries, Molson Coors Brewing Co. and SABMiller PLC – essentially a merger of brands Miller and Coors. The result will be a $6.6 billion company.
• In meat & poultry, JBS S.A., the largest beef processor in Latin America, bought Swift & Co. for $1.4 billion. Smithfield Foods acquired Premium Standard Farms, for $800 million. Pilgrim’s Pride Corp. became the world’s largest chicken company by production by getting Gold Kist Inc. for $1.1 billion
• Ralcorp Holdings Inc. on Aug. 4 completed the acquisition of the Post cereals business from Kraft Foods in an all-stock transaction valued at approximately $2.6 billion.
• In confectionary, Switzerland-based Barry Callebaut sold its U.S. business, Brach's, to Farley's & Sathers Candy Company Inc.; Campbell Soup Co. sold its Godiva business to Yildiz Holding; and The Topps Co. was bought by Tornante Company LLC and Madison Dearborn Partners LLC.

The Food Institute report also noted the trend of larger conglomerates purchasing smaller, health-focused companies and brands -- namely, Coca-Cola Co.’s purchase of glacéau and Fuze, PepsiCo’s purchase of Naked Juice, and Kellogg’s purchase of Bear Naked granola.