Asset-Swapping Changes the Faces of Numerous Businesses

March 30, 2006
Unilever, ConAgra, Del Monte and Pinnacle will look significantly different once the dust settles.

Unilever European frozen foods for sale

Unilever Plc, London and Amsterdam, announced it is has to put up for sale most of its European frozen foods businesses. Not for sale are frozen food operations in Italy, nor any ice cream businesses, nor the Bertolli brand in the U.S.

"Deciding to put the majority of our European frozen food business up for sale has been a tough call," said Patrick Cescau, group chief executive. "It has been a successful business for us over many years, we've built some great brands for consumers with memorable advertising, and they've created real value for our shareholders.

"However, growth has been harder to come by. After an exhaustive review we have decided that the best way for us to create value is by selling [the businesses]."

Unilever undertook a critical review last fall, which looked at all possibilities for the operations. The review could not find a strategy for those businesses that would deliver satisfactory value for Unilever, and that the frozen food brands would do better under other ownership.

The exception was the Italian frozen food business, "because it is inherently an attractive business with good growth prospects," said Cescau. "It has a good track record, strong leadership positions and is strategically important in a number of ways. It is our biggest single business in Italy, and its retention plays an important role in future trade relations in that country. It is also an important source of innovation and technology for the frozen meals segment that is proving so successful in the U.S."

The intended sale includes the Iglo and Birds Eye brands in Austria, Belgium, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Spain and the United Kingdom. Total sales are approximately €2 billion (US$2.4 billion) and the units employ about 3,500.

More divestitures at ConAgra

Saying "It is essential we increase our investments behind our highest potential brands," Gary Rodkin, president/CEO of ConAgra Foods Inc., in March announced several more product divestitures, a one-third cut in the company dividend but also a 21 percent increase in advertising spending.

The Omaha, Neb., company's Singleton seafood unit, which had $290 million in sales last year, and the Swissrose cheese unit, which had $200 million in sales, join on the selling block Butterball turkey, Armour meats, Louis Kemp seafood and Cook's hams, which earlier were earmarked for sale. Altogether, the divested businesses had sales of $2.8 billion, Rodkin said, that's 19 percent of the company's 2005 revenue. ConAgra owns 70 brands.

Smithfield Foods has agreed to buy Cook's ham and Trident Seafood is buying Louis Kemp and other surimi businesses.

On the other hand, ConAgra will boost its advertising spending by $75 million, to $425 million, mostly for top-selling brands such as Pam cooking oil, Reddi-wip topping and Orville Redenbacher's popcorn, said Rodkin, a former Pepsico exec who just took over ConAgra last Oct. 1.

The quarterly dividend was cut to 18 cents a share from 27.5 cents, which "continues to represent one of the highest payout levels among consumer food companies," Rodkin said. Last year was the first time since 1975 ConAgra failed to raise its dividend. It was spending $565 million a year on the dividend, the fifth highest on a yield basis of companies in the Standard and Poor's 500 index, according to a Bloomberg News report.

Sales are down 46 percent since 2001 through a combination of divestitures and market share losses. The company's stock price fell 4.5 percent on the news, hitting $19.50, the lowest closing price since June 2001.

"The planned divestitures are the catalyst for our ability to attack costs, streamline our operations and return quickly to recent earnings levels, but with a significantly stronger foundation for future performance," Rodkin said.

Del Monte swaps baby food for pet food

Del Monte Foods Co., San Francisco , made several moves last month that established itself as an overnight leader in the pet food business while exiting the baby food and private label soup businesses it bought four years ago from H.J. Heinz Co.

Early in March, Del Monte acquired Meow Mix Co. for about $705 million from Cypress Group. The New York private equity firm bought Meow Mix for $425 million in 2003.

Two weeks later, Del Monte bought several pet food brands, including Milk-Bone, from Kraft Foods Inc. for $580 million. The Milk-Bone brand generated $180 million in 2005 revenue for Kraft, which recently deemed the pet food businesses as non-core assets.

Del Monte pet brands include Kibbles 'n Bits and 9Lives - also acquired from Heinz - and already account for 26 percent of the company's revenues in 2005. These acquisitions should make pet foods more than 40 percent company's sales. Del Monte sales exceeded $3 billion in fiscal 2005.

In between the two deals and to finance the acquisitions, Del Monte sold the Nature's Goodness baby food and private label soup businesses to TreeHouse Foods Inc. for about $275 million.

TreeHouse Foods, based in Westchester, Ill., is a collection of nonstrategic assets spun off from Dean Foods Co. last year. Its major products include pickles and nondairy coffee creamer. Chairman and CEO is Sam Reed, who once headed Keebler Foods Co. He said he wants TreeHouse to lead a consolidation of the highly fragmented private label food business.

"I don't think we've bitten off more than we can chew," Del Monte Chairman/CEO Richard Wolford was quoted as saying in media reports. Del Monte's pet products division is based in Pittsburgh.

Dial canned meats go to Pinnacle

Pinnacle Foods Group Inc. acquired certain assets of the Armour food products business from Dial Corp., Scottsdale, Ariz., for $183 million in cash and assumed liabilities.

Most of the Dial food products were in the dry canned meat category, particularly under the Armour brand name. Armour has a leading market position in the Vienna sausage, potted meat and sliced beef categories. The business also includes meat spreads, chili, luncheon meat, corned and roast beef hash, beef stew and lunch buckets.

Pinnacle, based in Cherry Hill, N.J., manufactures products in the frozen foods and dry foods segments, including such brands as Swanson and Hungry Man frozen dinners and entrees, Van de Kamp's and Mrs. Paul's frozen seafood, Aunt Jemima, Lender's, Vlasic, Duncan Hines, Mrs. Butterworth's and Log Cabin.

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