WhiteWave Deal Doesn't Signal More M&A in the Natural-Foods Group
French food giant Danone said Thursday that it will acquire WhiteWave Foods (WWAV) for $10 billion, or $12.5 billion after debt and other liabilities.
WhiteWave Foods is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells WWAV? Learn more now.
WhiteWave, which makes plant-based food products, was offered at an 18% premium to its Wednesday closing price. And some have speculated that another offer will be presented in the coming days by a Danone competitor.
But investors should dissuade themselves of the notion that other natural, organic and healthy food makers are in line for similar deals.
Shares of Amplify Snack Brands (BETR) rose more than 2%, while Hain Celestial's (HAIN) - Get Report stock jumped by more than 7% Thursday. Amplify Snack Brands focuses on health foods and snacks that are free of genetically modified organisms, while Hain Celestial supplies natural and organic foods to large grocery chains such as Kroger's and Whole Foods Market.
But Amplify Snack Brands and Hain Celestial don't have brands that are as well-known as those at WhiteWave, which include Alpro, Horizon Organic and Silk.
WhiteWave was offered a massive premium and is being bought because of its brand strength, not just because of what it makes.
That has been a problem for Amplify Snack Brands and Hain Celestial, which make brands that supermarket chains such as Kroger's and Whole Foods sell under their own labels. The grocery chains can then sell the items fairly cheaply while still making healthy margins.
But, for more established brands like Silk, the store-branded items don't compete and sell as well.
Although it isn't completely out of the realm of possibility that a company will come in and scoop up Amplify Snack Brands or Hain Celestial in the coming months, the odds of it happening are slim. That is why investors shouldn't buy these stocks based solely on the idea that a buyout offer will push the stock prices higher.
Finally, just based on price-earnings ratios, Hain Celestial isn't cheap at 25 times earnings, while Amplify Snack Brands is absurdly expensive at 85 times. Both companies are risky bets, considering that they operate within a slow-growth industry.
---
Still looking for other investing ideas? An 85% accurate trader gives his personal guarantee: "Give me nine minutes a week, and I guarantee you $67,548 a year." He turned $50,000 into $5 million trading this way, and for a limited time, he is guaranteeing investors at least $67,548 per year in profitable trades if they follow this simple step-by-step process. Click here to see how easy it is to collect thousands of dollars in free money every month.
This article is commentary by an independent contributor. At the time of publication, the author held stock in Kroger's.