A Natural for Heinz

Will H.J. Heinz gulp down natural-and-organic-food giant Hain Celestial Group (HAIN ), of which it already owns 18%? Hain stock zoomed from 3 in 1997 to 40 in 2000 but has fallen to 16.76, as the products--among them, Hain Pure Foods, Terra Chips, Soy Smoothie, and Celestial tea--lost their sizzle, and earnings cooled.

Now, certain investment managers have been buying Hain, betting Heinz will make a move soon. "Hain is a natural acquisition for Heinz," says one hedge fund manager. Heinz bought its stake in Hain for $100 million in September, 1999, when the two companies formed a pact for global production and marketing: Heinz provides procurement, manufacturing, and logistics skill, and Hain does the marketing, sales, and distribution. Hain has more than 1,000 products. With its deep pockets and market cap of $14 billion, Heinz could easily buy Hain and boost sales and earnings of both Heinz and Hain, argues the hedge fund manager.

Hain recently told analysts that earnings for the fiscal fourth quarter, ending June 30, 2002, will be below estimates, caused in part by building costs at its Terra Chips plant in New Jersey. Carole Buyers of RBC Capital Markets, who doesn't own shares, estimates 2002 earnings at 56 cents a share and 2003 at 84 cents, vs. 70 cents in 2001. She gives Hain stock a neutral rating, based on fundamentals. Nevertheless, Buyers has upped her 12-month price target from 18 to 21. CEO Irwin Simon says Hain is in good shape and doesn't need to look for partners. "But we have a good relationship with Heinz, and we'll do whatever is best for shareholders and the company." Heinz declined to comment on market speculation.

By Gene G. Marcial

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