By Gillian Tan, Ryan Dezember and Annie Gasparro
Post Holdings Inc. confirmed it will acquire Michael Foods Inc.
for $2.45 billion, expanding the cereal maker's menu of breakfast
offerings into eggs and dairy goods.
The Wall Street Journal reported Wednesday that Post was nearing
the deal. Michael Foods' private-equity owners have been running an
auction for the company during which Tyson Foods Inc. and others
bid, according to people familiar with the matter. But Post emerged
the winner.
The transaction is expected to close in the second quarter.
Michael Foods will continue to operate independently under its
current management team.
With slack consumer spending and a broad shift toward fresher
grocery items, packaged-food companies are under pressure to
bolster their bottom lines in various ways. Brazilian
private-equity firm 3G Capital has jolted the industry by slashing
costs at H.J. Heinz Co. since it teamed up last year with Berkshire
Hathaway Inc. for a buyout of the ketchup company, and activist
investors have targeted other big food makers including Mondelez
International Inc.
While some companies have been streamlining operations by
selling off brands, St. Louis-based Post has been on a spending
spree to diversify its offerings since it was spun off from Ralcorp
Holdings Inc. in 2012. Best known for its Fruity Pebbles and Honey
Bunches of Oats cereals, it has added protein bars, peanut butter
and pasta products in the past year.
Post has identified acquisitions as a key part of its strategy.
Chief Executive Bill Stiritz, a veteran in the consumer-goods
industry, has focused on the rapidly growing areas of natural and
organic foods.
The deal for Michael Foods represents Post's biggest
acquisition, nearly doubling its size. Post, whose market value is
about $2 billion, reported sales of $1 billion and earnings of $9.8
million for the fiscal year ended Sept. 30. But Post investors
appear to like the idea of the purchase, sending the stock up 5.7%
to close at $54.73 Wednesday after The Wall Street Journal reported
the potential sale.
Based in Minnetonka, Minn., Michael Foods, which traces its
roots to 1908, produces and distributes food products including
Abbotsford Farms eggs, Simply Potatoes, Crystal Farms cheeses and
liquid egg whites. It reported total sales of $1.95 billion and
earnings of $50.4 million for the year ended Dec. 28. It had $1.2
billion of debt as of that date.
Michael Foods is owned by the buyout arm of Goldman Sachs Group
Inc. and Thomas H. Lee Partners LP. The Goldman unit bought a
majority stake in Michael Foods in 2010 from TH Lee, which retained
a roughly 20% stake. That deal valued the company at $1.7 billion
including debt.
Part of the attraction for Post was a change in consumer eating
habits, said a person familiar with the matter. Post's cereal
business has struggled as consumers choose more portable, less
carbohydrate-heavy breakfast items. The company has said the Attune
Foods and Hearthside's Golden Temple granola businesses it bought
last year, which put Post into the natural foods aisles, are
experiencing high-single-digit growth, and that its later purchase
of Premier Nutrition Corp. gives it access to the double-digit
growth in the sports nutrition and weight-loss category.
Some companies are narrowing their focus instead of
diversifying. Nestlé SA agreed to sell its PowerBar brand to Post
earlier this year, and sold its Jenny Craig brand to a
private-equity firm in 2013. Procter & Gamble Co. last week
announced the sale of its pet-food business to Mars Inc.
Last year's acquisition of Heinz shook the packaged-food
business, and has fueled expectations that more big deals in the
industry could be in the works.
Earlier this month, shares in Kellogg Co. surged by their
biggest one-day gain since 2009. Analysts credited speculation that
the company may be the industry's next takeover target. The shares
remain up about 8.3% over the past month. Kellogg has declined to
comment.
Dana Mattioli and Ben Fox Rubin contributed to this article.
Write to Gillian Tan at gillian.tan@wsj.com, Ryan Dezember at
ryan.dezember@wsj.com and Annie Gasparro at
annie.gasparro@wsj.com
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