Del Monte Pacific Ltd. (DELM), the Philippines-based pineapple, tomato and fruit juices company, agreed to buy the consumer food business of closely held U.S. foodmaker Del Monte Foods Co. for $1.68 billion to expand in the world’s biggest economy.
The deal between the two unaffiliated companies gives the Asian firm rights to the Del Monte, Contadina, S&W and College Inn food brands in the U.S., the San Francisco-based company said in a statement today. The Philippine company already has licenses for some of the brands in parts of Asia.
Del Monte Pacific is seeking to expand into the U.S., where consumer spending rose in August for a fourth consecutive month. The deal gives it canned fruit, vegetable and broth brands as part of a business that counts Wal-Mart Stores Inc. (WMT) among its customers. The lines generate annual sales of about $1.8 billion, according to the statement.
“The U.S. was one of few key markets where our company did not have a direct presence nor have its own brands.” Del Monte Pacific Chairman Rolando Gapud said in a statement today.
Del Monte Pacific also operates pineapple plantations and will benefit from expanding in the processed food business in the U.S., it said in a statement today. It has been a supplier of processed pineapple to Del Monte Foods.
Del Monte Pacific is paying 0.93 times revenue, higher than the 0.85 average of 14 deals involving canned food companies over the last decade globally, according to data compiled by Bloomberg and the revenue estimate in today’s statement.
The Singapore-listed company may be overpaying and be better off investing the amount in emerging markets, where its strengths currently are, said Siyi Lim, a Singapore-based investment analyst at OCBC Investment Research.
“The U.S. economy is improving, but the space is quite crowded, and you should stay with your competitive strengths,” Lim said. “At the end of the day, you are still selling consumer staples, and there is a limit as to what consumers can buy.”
The Del Monte brand, which originated in California in 1892, was broken up in the 1990s in a buyout led by New York-based private equity firm KKR & Co (KKR), according to a presentation by the Philippine-based company. This resulted in unaffiliated Del Monte businesses having the rights to the brands in respective markets and product categories.
The U.S. company, which is partly owned by KKR, said it was selling the consumer business to focus on the pet food industry.
Del Monte Pacific will finance the acquisition through a $930 million long-term loan and by issuing new stock in a newly created unit to run the acquired business, according to the filing. It has a market capitalization of S$1.2 billion ($930 million), according to data compiled by Bloomberg
Del Monte Pacific’s Philippine-listed shares rose 11 percent to 30 pesos as of the close of trading in Manila, bringing their gain this year to 10 percent, compared with the 12 percent advance on the Philippine Stock Exchange Index. The Singapore-listed shares rose as much as 11 percent.
The transaction is subject to regulatory approvals and customary closing conditions and expected to close early next year. Perella Weinberg Partners LP served as lead financial adviser and Citibank as a financial adviser to Del Monte Pacific.
Morgan Stanley & Co and Centerview Partners are acting as financial advisers to Del Monte Foods.
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