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Balance Bar Shares Surge on Kraft Takeover

Carolyn Koo

Updated from 12:02 p.m. EST

Balance Bar (BBAR) shares rose over 35% Friday on news the maker of nutrition-and-energy bars would be purchased for $268 million by Kraft Foods, the grocery giant known more for mainstays like Miracle Whip and Jell-O than for purely nutritional foods.

Balance Bar was one of the biggest gainers on the Nasdaq stock market, up 5 5/16, or 38%, to 19 1/8 on volume of more than 2 million shares by late morning. (Balance Bar closed up 5 5/16, or 38.46%, at 19 1/8.)

Kraft, a unit of New York-based tobacco and food conglomerate Philip Morris (MO), will purchase Balance Bar for $19.40 a share, a 37% premium to Balance Bar's closing price on Thursday of 14 1/8. The tender offer is expected to close by the end of February.

Philip Morris was down 1/4, or 1%, to 22 1/4. (It closed down 147/256, or 2.54%, at 22.)

"Balance Bar got a good price, though it deserved the premium," said analyst Laura Huskins of Adams, Harkness & Hill. "With Balance Bar's name and products and Kraft's distribution and marketing, they can do a lot with this product line." She rates Balance Bar a strong buy and her firm helped to underwrite the company's initial public offering in June 1998.

Balance Bar's arrangement to market a line of bars under the Jenny Craig (JC) brand was likely "one component that drove up the multiple," said analyst Bonnie Tonneson of Chase H&Q. This is the first time that Jenny Craig, which enjoys a large following, has branded food for sale at retail outlets.

Tonneson, who rates Balance Bar a market performer and whose firm was the lead banker on the company's IPO, added, "This deal speaks to the value that some of these well-established, fast-growing natural food brands are commanding." She cited General Mills' (GIS) agreement in December to purchase organic food product maker Small Planet Foods and Kellogg's (K) purchase in November of Worthington Foods, which makes soy-based vegetarian items. Tonneson also noted that PowerFoods, the maker of Power Bar, and Ben and Jerry's Homemade (BJICA) are both up for sale. "By the end of 2000, I expect to see several more sales in kind," she said.

"There's a feeding frenzy among the more established, slower-growing companies to boost their growth trajectory with the acquisition of a 'crown jewel' brand," said Tonneson, "and to become more relevant with healthier foods that appeal especially to the Baby Boomer generation."

The deal marks Kraft's entry into the nutrition/energy bar category, which has doubled since 1997. The company is already the largest packaged foods maker in the U.S., with products such as Oscar Mayer meats, Maxwell House coffee, Post cereals and Philadelphia cream cheese.

This acquisition, combined with its acquisition, announced earlier this week, of Boca Burger, a privately held manufacturer and marketer of soy-based foods, or meat alternatives, reflects Kraft's increased resolve to expand its base of products to natural foods.

"It was a make vs. buy decision," said Tonneson. "Kraft could invest the R&D [research and development] and marketing money into developing and launching a new product. Or it could let someone else try out a brand first and then scoop it up."

Balance Bar, based in Carpinteria, Calif., has expanded quickly in the past five years and sells in grocery stores nationwide. Sales for the company last year totaled $100.9 million, up from $1.3 million in 1995.