Heinz plans to spin off brands
PITTSBURGH (AP) – Food giant H.J. Heinz plans to spin off sluggish brands including StarKist tuna and 9Lives cat food and merge them with a reorganized Del Monte in which Heinz shareholders will own a 75 percent stake. The companies said Thursday that the businesses being spun off generate sales of about $1.8 billion, or 20 percent of Heinz’s annual sales, and that the boards of both companies have approved the plan.
Under terms of the deal, Heinz will create a new subsidiary that will be spun off to Heinz shareholders and immediately merged into a unit of Del Monte.
Del Monte will get Heinz’s slow-growing StarKist brand and the company’s pet food brands, which include 9Lives, Kibbles ‘n Bits and Snausages. It also gets Heinz’s U.S. baby food business and College Inn Broths brand.
“The issues we have experienced with these businesses have been no secret,” said William R. Johnson, Heinz chairman and chief executive. “While we have made improvements, the path we have chosen will put them behind us.”
Johnson said the deal will allow Heinz to focus on its core businesses – ketchup, sauces and foods – while Del Monte will get six top brands.
“For Heinz, less will be more; for Del Monte, bigger will be better,” Johnson said.
San Francisco-based Del Monte, which is a major manufacturer of canned fruits and vegetables, said the deal will increase its presence on store shelves with new products and boost sales to more than $3 billion.
“We will be in every important grocery aisle,” said Rick Wolford, Del Monte chairman and chief executive.
Wolford acknowledged the pet food and tuna businesses were hurting, but believes that the company can turn the brands around by supporting them better than Heinz, which skimped on the brands to support its core products.
Analysts said the move was a gamble for Del Monte.
“Del Monte, they are taking a risk here. Heinz is a bigger company and they have a lot more money for marketing and they could do nothing for these brands,” said Terry Bivins, an analyst with Bear Stearns.
The company could have a tough time against baby food giant Gerber and, with Nestle’s purchase of Ralston, the pet food aisle is getting competitive.
“You have got some big, well-oiled competitors,” Bivins said.
Pittsburgh-based Heinz said its shareholders will receive about 0.45 shares of the new Del Monte for every Heinz share, which will give them control of about 74.5 percent of Del Monte. The stake would be worth about $1.7 billion. Del Monte shareholders will get the remaining 25.5 percent stake, valued at about $700 million.
The deal is expected to be completed at the end of this year or early next year.
About 5,000 Heinz employees will be transferred to Del Monte, but the companies said the size of the Heinz and Del Monte work forces would change only minimally. Del Monte will assume about $1.1 billion in debt from the deal, Heinz said. Heinz added that it plans to pay down an additional $1 billion in debt by the end of fiscal 2005.
Wolford will retain his posts. Heinz will nominate six members of Del Monte’s new board, while Del Monte will name three.
Also on Thursday, Heinz announced fourth quarter earnings increased 18.2 percent to $219.4 million, fueled by stronger sales newly acquired frozen foods brands. The results were up from a $185.7 million profit during the same period last year and met analysts’ expectations of 62 cents a share, excluding special items.
Including special items, Heinz earned $223.5 million, or 57 cents a share, up from a $170.5 million loss a year earlier caused by higher energy costs and restructuring costs and acquisitions.
Sales increased 4.8 percent to $2.57 billion in the fourth quarter, bolstered by a 20-percent jump in frozen food sales, including recently acquired TGI Friday’s, Popper and Delimex brands.
For the year, Heinz’s earnings almost doubled from $494.9 million a year ago to $883.9 million, or $2.39 a share, including special items. The results met expectations of analysts polled by Thomson Financial/First Call.
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On the Net:
Heinz: http://www.heinz.com
Del Monte: http://www.delmonte.com