Photographer: Daniel Acker/Bloomberg

Tea Maker Hain Climbs After Activist Engaged Discloses Stake

  • Activist investor proposes seven nominees for Hain board
  • Engaged says may suggest company pursue whole, partial sale

Activist investor Engaged Capital disclosed a 9.9 percent stake in Hain Celestial Inc. and is pushing for sweeping board changes and a potential sale of the natural and organic food company.

Shares in the maker of Celestial Seasonings teas and Terra chips rose 12 percent to $40.17 in early trading in New York Friday.

The fund has proposed seven nominees for Hain’s eight-person board, according to a regulatory filing Thursday. It is also pushing Hain to explore ways to unlock shareholder value, including a potential sale of all or part of the company.

Engaged believes Hain could fetch $46 to $73 a share in a sale based on recent acquistions in the food industry, including General Mills Inc.’s takeover of Annie’s Inc. in 2014, Danone’s purchase of WhiteWave Foods Co., announced last year, and Pinnacle Foods Inc.’s agreement to buy Boulder Brands Inc. in 2015, according to a person familiar with the matter.

Engaged was an investor in Boulder before it was sold.

The investor also thinks Hain has underperformed its peers and sees a significant opportunity to improve revenue and operating margins by streamlining its supply chain and complex assortment of products, said the person, who asked not to be identified as the details aren’t public.

Board Talks

Engaged has communicated with Hain’s board and management about ways to create value for shareholders and may seek further talks, according to the filing. It said it may seek discussions with other stockholders, as well as proposing changes to the company’s capital structure and ownership structure, among other possible actions.

A representative for Hain didn’t immediately respond to requests for comment.

“We are generally favorable to breakup stories and think Hain can be improved fundamentally,” said Ken Goldman, an analyst at JPMorgan Chase Bank NA, in a note to clients.

“We also see the logic in trying to transform Hain’s board. However, we have some doubts about how much can be done to incrementally create value from here.”

The company has already taken steps to improve its margins, including the biggest cost-saving program in U.S. food today, Goldman wrote. It is also unlikely to be sold outright and doesn’t offer a compelling valuation on a sum-of-the-parts basis, he added.

Accounting Probe

Hain, which supplies natural and organic food to Whole Foods Market Inc. and other grocers, this month reported financial results for the first time in more than a year after completing an internal accounting probe.

Hain had been operating under a cloud since August, when it alerted the U.S. Securities and Exchange Commission that it was delaying the release of its financial results and examining its accounting practices. The company recently said it didn’t need to restate any of its results. 

A separate investigation by the SEC is continuing, Hain said in a filing.

Chief Executive Officer Irwin Simon recently said Inc.’s $13.7 billion purchase of Whole Foods last week is positive for Hain and that the company will benefit if more people have access to natural and organic products.

Glenn Welling, a former partner at Relational Investors, formed Newport Beach, California-based Engaged with other Relational managers in 2012 and with the backing of Grosvenor Capital Management.

— With assistance by Craig Giammona, and Joshua Fineman

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