Shares of Del Monte Foods (DLM ), now at 9, are apt to fall when the fruit-and-vegetable canner completes its purchase of H.J. Heinz' pet-food, private-label soup, baby-food, and Star-Kist tuna businesses. Del Monte will issue 160 million new shares to pay for them. Analysts have cooled on Del Monte, in anticipation of selling by Heinz shareholders who will get the new shares. But that's what Scott Kuensell hopes will happen: "We've been buying, and we will buy more if the stock drops," says Kuensell, managing director at Brandywine Asset Management.
Because the Heinz deal will transform Del Monte into a larger enterprise--with sales of $3 billion, vs. its current $1.2 billion--and boost its market cap from $500 million to nearly $2 billion, Del Monte could be a juicy target for other food companies, says Kuensell. Texas Pacific Group, which owns 46% of Del Monte, rejected a recent $12-a-share offer. But the buyout outfit may craft a deal for more, says Kuensell, who sees the stock at 20 in two years. He predicts 2003 earnings of 90 cents a share, down from 2002's estimated 94 cents, because of the extra shares.
Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
By Gene G. Marcial