March 22 (Bloomberg) -- Unilever’s Ragu could be paired with foods like Spam and jam as Hormel Foods Corp. and J.M. Smucker Co. prepare for an auction of the pasta sauce, people with knowledge of the matter said.
Also considering a bid for Ragu are Pinnacle Foods Inc., Hillshire Brands Co., Post Holdings Inc. and Japanese grocery supplier Mizkan Co., the people said, asking not to be identified as the information is private. With first round bids for Ragu, which may fetch as much as $2 billion, due at the end of next week, all of the potential buyers have contacted banks to discuss their interest, the people said.
The bidders will be betting that with a bigger marketing budget and innovation in new products they can grow a brand that has stagnated, one of the people said. Under Chief Executive Officer Paul Polman, Unilever has focused on its health and beauty business while selling food brands. A new owner could try selling prepared foods with Ragu sauce, or using new packaging to give the sauce the appearance of being fresh, said Ken Harris, managing partner of Cadent Consulting Group.
“Ragu is a great brand,” Harris said in a telephone interview. “It needs some care and feeding.”
Jaime Stein, a spokeswoman for Unilever, declined to comment on the Ragu sale as did representatives for Hormel, Smucker and Pinnacle. Spokesmen for Hillshire, Post and Mizkan Americas did not reply to e-mail messages or phone calls seeking comment.
Founded in Rochester, New York, in 1937 and acquired by Unilever in 1987, Ragu accounts for about 40 percent of Unilever’s $1.2 billion pasta-sauce sales, according to data tracker Euromonitor International and Liberum Capital. Sales have declined 18 percent since 2009, hurt by the encroachment of private-label sauces, which now account for about one-quarter of the market.
Ragu is the best-selling sauce in the U.S., with 27 percent of the market, according to Euromonitor. Campbell Soup Co.’s Prego brand is second with 18 percent.
Unilever sold Ragu in the U.K. in 2011, Skippy peanut butter and Wish-Bone last year, and its European meats business including the Peperami brand last month. CEO Polman said in December that the company would continue selling non-core assets this year.
Unilever is working with Morgan Stanley to sell Ragu, and has also reached out to potential bidders including HJ Heinz Co. and Kraft Foods Group Inc., people said earlier this month.
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