To stay focused on these high growth areas, Unilever sold its North American frozen foods segment, Bertolli, to ConAgra Foods, Inc. (NYSE:CAG) last year. It also sold Skippy peanut butter to Hormel Foods Corporation (NYSE:HRL) earlier this year, further decreasing its dependence on the North American packaged foods market. Now, Unilever is looking to sell Wish-Bone, which it acquired in 1972 as part of Lipton. Goldman Sachs Group, Inc. (NYSE:GS), which is overseeing the sale, estimates that the brand is worth $400 to $500 million.
However, Pinnacle Foods isn’t the only company interested in Wish-Bone. B&G Foods, Inc. (NYSE:BGS), a smaller rival that has also been rapidly expanding through acquisitions, has emerged as a second interested party. B&G Foods, Inc. (NYSE:BGS) is best known for its Ortega shelf-stable Mexican food products, Mrs. Dash salt-free seasonings, and Maple Grove Farms syrups and salad dressings. However, B&G has even less cash, at $16.15 million, and reported $631.1 million in debt last quarter.
Therefore, both parties would have to take on significant debt to finance an acquisition. However, Pinnacle and B&G appear to believe that Wish-Bone’s growth potential outweighs its cost. Although Unilever reported a disappointing 0.5% sales decline in its Foods segment last quarter, its Dressings segment reported a positive gain, fueled by strong sales in Latin America, North America and Europe. However, not everyone believes that Wish-Bone is worth the price – The Clorox Company (NYSE:CLX) and Post Holdings Inc (NYSE:POST) notably passed on the deal after expressing initial interest.
Shelf-stable profits from canned food
Pinnacle has also expressed interest in purchasing privately-held Del Monte Food’s canned food business segment. That purchase, which is worth an estimated $1.5 billion, would expand Pinnacle’s reach into canned fruit and vegetables, which complements its business of frozen foods.
Del Monte Foods, the former parent company of publicly-traded Fresh Del Monte Produce Inc (NYSE:FDP), operates two main businesses – consumer goods (including canned food) and pet food products, which include Milk-Bone, 9 Lives and Kibbles n’ Bits. Last quarter, sales of Del Monte’s consumer goods only rose 0.7% year-on-year, but sales of its pet product sales surged 8%. This means that it makes a lot of sense for Del Monte to sell off its canned foods segment to concentrate on its higher growth pet products.
Yet if Pinnacle decides to pursue the hefty acquisition, it will have to contend with Fresh Del Monte, which is also interested in absorbing its former parent company’s canned food business. Fresh Del Monte struggled last quarter with balancing its expenses, after the high cost of bananas hit its bottom line. As a result, Fresh Del Monte’s earnings slid 34.2% year-on-year as revenue only rose 2.3%. Therefore, purchasing Del Monte Foods’ shelf-stable canned products could help stabilize its top and bottom line growth.
However, Fresh Del Monte Produce Inc (NYSE:FDP) also has a fairly weak cash position of $25.9 million and has $151.2 million in debt, which means that a $1.5 billion acquisition, which would nearly double its market cap, could be a risky, all-in deal.
