Consumer Stock Takeovers: Deals and Targets

(Consumer stock takeover report updated with info about SABMiller's hostile takeover bid for Australia's Foster's.)
NEW YORK (TheStreet) -- Brewer SABMiller took its hostile $10 billion bid for Australia's Foster's directly to shareholders, underscoring a growing trend of corporate dealmaking in the consumer stock sector.

M&A activity in the U.S. was up more than 40% year over year in the first half of 2011, and the second half has already seen its share of deals as well.

SABMiller bid $A4.90 per share for Foster's in June, valuing Foster's at A$9.5 billion ($10 billion), but Foster's CEO John Pollaers deemed the offer too low to consider. SABMiller then took the same offer directly to shareholders, according to Aug. 17 reports. Rival bidders have not stepped forward -- though Molson Coors Brewing ( TAP) and Mexico's Grupo Modelo were reportedly in talks to make a joint bid for the target, according to June 3 reports -- and Foster's is considered by some analysts to have few other options.

"I don't think the offer on the table is fair value," Paul Xiradis, CEO at fund manager Ausbil Dexia, told Reuters. "Foster's is a prized asset with strong cash flow and at probably the low point of its earnings cycle. For an iconic business, that sort of an offer is undercooking it."

Charles Stanley analyst Sam Hart said "it is unlikely that Foster's shareholders would accept an offer at A$4.90, but it could be the catalyst for the Foster's board to engage with SAB and agree a recommended offer of up to A$5.40."

Fosters' attractiveness stems from its high margins -- said to be around 37% for beer, nearly double that global competitors -- and 50% market share in Australia.

Should a deal go through between SABMiller and Foster's, it would be the biggest consolidation in the brewing industry since InBev acquired Anheuser-Busch ( BUD) for $52 billion in 2008. That deal marked the biggest cash takeover on record.

Click here for news of other recent takeover deals and targets...

Sara Lee ( SLE) said it agreed to sell its refrigerated dough business to Ralcorp Holdings ( RAH) for $545 million, according to Aug. 9 reports.


Ralcorp said the acquisition would add 30 cents a share to its earnings in the first year after the sale is complete. It plans to fund the deal through short-term debt.

Ralcorp's purchase should help the private-brand food products maker improve its margins after it laid plans last month to spin off its Post Foods cereal unit. That announcement came on the heels of Ralcrop twice rejecting unsolicited takeover bids from ConAgra Foods ( CAG).

Sara Lee announced its intention to divest its refrigerated dough business earlier this year. The unit makes up about 3% of its annual revenue.

The sale comes as part of the food maker's larger plan to spin off its North American retail and food service business, a company that will trade publicly and retain the Sara Lee name. That business includes brands such as Hillshire Farm lunch meat, Ball Park hot dogs and Jimmy Dean sausages. The other company, Sara Lee's remaining international bakery and beverages businesses, which includes Douwe Egberts and L'Or brands, was as yet unnamed but referred to as CoffeeCo and could be based overseas.

In May, Sara Lee said it was on track with the split, expected to be complete in 2012.

Click here for news of other recent takeover deals and targets...

On July 26 Clorox rejected a revised unsolicited takeover bid of $80 per share from billionaire investor Carl Icahn and announced that its board of directors unanimously concluded that it "substantially undervalues the company is not credible."

On July 20 Icahn raised his bid to $80 per share, after Clorox ( CLX) rejected his July 15 offer of $76.50 on July 18 and adopted a shareholder rights plan, which amounts to a "poison pill" that protects against hostile buyers through share dilution.


Icahn said July 20 that his firm and affiliates would escrow $5.2 billion, inclusive of his ownership of 12.5 million shares of Clorox, adding that there is no legitimate concern that he could raise the remaining $7.8 billion in financing needed to complete his proposed deal.

Icahn sent another letter to Clorox CEO Donald Knauss on July 20 calling the board's concerns "misguided," and wrote that "for Don Knauss and the rest of the board to claim our proposal remains inadequate and at the same time tout your record for shareholders seems a bit absurd."


Icahn's original proposal was widely viewed as merely a way to put Clorox in play. Entities controlled by Icahn own roughly 9.4% of Clorox's outstanding common stock, making him the company's largest shareholder. He tapped consumer products makers Procter & Gamble ( PG), Unilever ( UN), Kimberly-Clark ( KMB) and Colgate-Palmolive ( CL) as possible "strategic buyers" that might offer "superior bids."

"We are in a unique position as your largest shareholder in that we are wearing two hats -- one as a shareholder and another as a buyer," Icahn wrote in his July 15 letter.

Nestle's ( NSRGY) bid for Chinese confectioner and snacks maker Hsu Fu Chi International was under review, according to July 15 reports.

Nestle offered $1.7 billion for the company in an effort to expand in emerging Asian markets, and better compete with rival multinational companies like Danone ( DANOY) and Unilever ( UL).

If completed, the deal would represent one of the largest takeovers of a Chinese company by a foreign one.

The Chinese Commerce Ministry's anti-monopoly bureau was evaluating the bid, according to state-run news agency Xinhua.

Earlier this year Nestle acquired a 60% stake in China's Yinlu Foods Group for an undisclosed amount. The acquisition boosted its dairy business in the region.

On July 14 Ralcorp Holdings ( RAH) said it would spin off its Post Foods cereal unit, after twice rejecting unsolicited takeover bids from ConAgra Foods ( CAG).

By spinning off Post Foods, Ralcorp will concentrate on lower-priced non-branded foods while Post Foods will concentrate on braded cereals.

An unnamed source told Reuters that Ralcorp had already been considering the Post spinoff before being approached by ConAgra.

Under the spinoff, Post will issue between $1.1 billion and $1.2 billion of debt with net cash proceeds of about $1 billion to Ralcorp.

Ralcorp acquired Post from Kraft Foods ( KFT) three years ago for $2.6 billion, including debt.

On June 20 Colgate-Palmolive ( CL) said it completed the acquisition of the Sanex personal care brand from Unilever ( UN) for €672 million ($958.9 million).

"We are excited to move forward on this strategically important acquisition that will strengthen Colgate's positions in the shower gel and deodorant categories in Europe and our overall personal care business in that region," Colgate CEO Ian Cook said.

According to TheStreet guest contributor Trefis, the deal, which was imminent given Colgate's health cash position, strengthens the company's personal care business in Europe with shower gels and deodorants marketed under the Sanex brand amounting to sales of more than $265 million in 2010. It also helps Colgate focus on the higher-margin personal care business amidst rising commodity costs affecting household care product segments. Colgate believes the transaction would increase earnings by 4% and improve margins by 1% by 2012.


The deal also included Colgate selling its laundry detergent business in Colombia to Unilever for $215 million.

The selloff of Unilever's deodorants and bath-care business in Europe was required on antitrust grounds for European Union's clearance of the $1.82 billion purchase of Sara Lee's ( SLE) personal care business in 2010.

On June 13, Wendy's Wendy's Arby's ( WEN) agreed to sell its struggling Arby's chain to private equity group Roark Capital Group in deal that valued the sandwich chain at $430 million.


The deal did not come as a surprise as Wendy's has said it was looking for strategic alternatives for Arby's, which has trailed Wendy's performance.

Under the terms of the deal, Wendy's will retain an 18.5% stake in Arby's, which has more than 3,600 restaurants systemwide. Wendy's will receive $130 million in cash at the closing of the deal; its 18.5% stake is expected to be valued at around $30 million.


Atlanta-based Roark Capital Group will assume around $190 million in debt related to the Arby's chain, which mainly consists of capital lease and sale-leaseback obligations.

Wendy's expects to realize an income tax benefit of around $80 million over the next few years.

The deal was expected to close early in the third quarter.

Molson Coors Brewing ( TAP) and Mexico's Grupo Modelo are reportedly in talks to make a joint bid for Foster's, according to June 3 reports, though other bidders may yet step forward for the Australian beer maker.

Foster's announced last year its intentions to divest its wine operations. The struggling business unit has been viewed as a deterrent to prospective buyers.

"It is 100% likely that they (Molson and Modelo) have been contemplating that kind of thing, but only in the sense that any major global brewer is always going to be looking at potential targets," Angus Gluskie, a portfolio manager at White Funds Management in Sydney, which holds Foster's shares, told the newswire. "But they have to make a decision on whether it is a good time or a bad time to act on it. There are a couple of strategic reasons why you may not do it and the Aussie dollar is probably the biggest of them."

Australian sources told Reuters that Foster's had not received a formal bid from Molson and Modelo.

Fosters' attractiveness stems from its high margins -- said to be around 37% for beer, nearly double that global competitors -- and 50% market share in Australia.

SABMiller, the world's second-largest brewer, could also be a likely bidder, according to sources who spoke to Reuters.

Both China's Tsingtao Brewery and Japan's Asahi Breweries have said they are not planning a bid for Foster's.

California Pizza Kitchen agreed to be sold to Golden Gate Capital for about $470 million, according to May 25 reports.

The deal valued California Pizza Kitchen at $18.50, a premium of nearly 11% compared with the California Pizza's closing price of $16.71 the day before news of the deal was reported.

California Pizza Kitchen, a casual-dining restaurant chain, operates around 250 stores in 32 states and a few foreign countries.

The pizza chain last spring hired an investment bank to explore a potential sale.

Hershey ( HSY)

Hershey ( HSY) could be a takeover target now that CEO David West left the confections maker to run Del Monte Foods, according to May 18 reports.

Operations chief John Bilbrey will replace West temporarily, and the board said it will "move quickly" to find a permanent CEO.


Citi analyst David Driscoll noted that West's exit from Hershey's masthead could make the company a prime takeover target, though he estimated the probability of a sale is only around 10%, up from his estimation of 2%.

Driscoll tapped Nestle ( NSRGY) or Kraft Foods ( KFT) as likely bidders who may view Hershey's executive changeup as "a good opportunity" to buy.

Deutsche Bank analyst Eric Katzman noted that executive changes come at an uncertain time for Hershey as the company faces soaring commodity prices for cocoa, sugar and milk -- headwinds that led it to cut costs.

Sara Lee ( SLE)

Sara Lee ( SLE) has been working to sell off its international bakery and North American refrigerated dough businesses.

It has already sold off a number of its business segments and Sara Lee said in January it would split itself into two separate companies following unsatisfactory takeover bids.


Sara Lee intends to spin off its North American retail and food service business, a company that will trade publicly and retain the Sara Lee name. That business includes brands such as Hillshire Farm lunch meat, Ball Park hot dogs and Jimmy Dean sausages. The other company, Sara Lee's remaining international bakery and beverages businesses, which includes Douwe Egberts and L'Or brands, was as yet unnamed but referred to as CoffeeCo and could be based overseas.

On May 5, Sara Lee said it is on track with the split, expected to be complete in 2012.

On May 4, Sara Lee completed the sale of its global shoe-care business, in a majority of countries, to SC Johnson for 245 million euros ($364 million).

The sale of its North American fresh bakery business should close by the end of this fiscal year, Sara Lee said. Its insecticides business sale is expected to close in the second half of 2011.

Sara Lee also said it acquired Aidells Sausage for $87 million in cash during the recent quarter in an effort to boost its meat business in North America and expand its footprint into the market of organic and natural meats.

McCormick & Schmick's Seafood Restaurant ( MSSR)

McCormick & Schmick's Seafood Restaurant ( MSSR) officially put itself up for sale in early May following a rejected takeover bid in April.

McCormick & Schmick's said it was considering a sale as one option for maximizing shareholder value.


In April, Landry's Restaurants founder and CEO Tilman J. Fertitta offered to acquire McCormick & Schmick's for $137.2 million, but the seafood restaurant chain rejected the unsolicited bid, saying it undervalued the company.

At the time, Fertitta said he would pay $9.25 per share for each McCormick & Schmick's share he did not already own, a 30% premium to the target's closing price of $7.12 the day before the offer was made.

Fertitta's offer was made though a unit of Landry's, which has been acquiring novelty restaurant brands such as Bubba Gump Shrimp, Oceanaire and Claim Jumper steakhouses. Landry's traded publicly until 2010 when Fertitta took it private for $1.4 billion.

Fertitta already owns a 10.1% stake in McCormick & Schmick's, making him the seafood chain's third-largest shareholder.

Diamond Foods ( DMND) and Procter & Gamble ( PG)

Diamond Foods ( DMND) picked up the Pringles brand from Procter & Gamble ( PG) in early April for $1.5 billion worth of stock.

P&G's divestiture came as it looked to more closely focus its business on cosmetics and healthcare products.


P&G shareholders will retain a 57% stake in the new company while Diamond shareholders will hold the rest. Diamond shareholders will also take on $850 million of Pringles debt.

Diamond Foods, meanwhile, acquired Kettle Foods for $615 million in 2010. In 2008 it acquired Pop Secret from General Mills ( GIS) for $190 million, and in 2006 it acquired certain assets from Harmony Foods.

Diamond, best known for its Emerald brand of nuts and trail mixes, Pop Secret popcorns and Kettle potato chips, will more than triple the size of its snack business with the addition of Pringles. The company now expects net revenue to total $1.8 billion in the fiscal year ending July 31, 2012.

H.J. Heinz ( HNZ)

H.J. Heinz ( HNZ) acquired 80% of Coniexpress S.A. Industrias Alimenticias.

The Brazil-based manufacturer makes the Quero brand of tomato-based products, including sauces, tomato paste, ketchup, condiments and vegetables.

Heinz reported the acquisition in early March.

The Quero business has annual sales of around $325 million, and will help to expand Heinz's footprint in Latin America with its first major business in Brazil.

Heinz said in March that it expected the Quero acquisition to double its sales in Latin America within the first full year.

Emerging markets are expected to account for more than 20% of the company's total revenue in fiscal 2012, thanks in part to the Quero business as well as the addition of Foodstar, a soy sauce manufacturer in China it purchased in November 2010 to help grow its business in Asia.

Yum! Brands ( YUM)

Yum! Brands ( YUM) put its restaurant chains Long John Silver's and A&W All-American Restaurants up for sale as it pushed to expand in international markets.

On Jan. 18, Yum! said the divestments came as it narrowed its focus for long-term growth plans toward greater expansion in China and other international markets while concurrently growing sales at Taco Bell, Pizza Hut and KFC in the U.S.


Yum! said it was looking for a buyer for LJS and A&W but had yet to find one.

"We do not believe Long John Silver's and A&W-All American Food restaurants fit into our long-term growth strategy," CEO David C. Novak said. "Accordingly, we have decided to put these two great brands up for sale and we will complete the sale only once the right buyer or buyers have been identified and we can ensure a seamless transition."

Yum! added that it "does not expect the eventual sale to have a material impact to its ongoing earnings or cash flow."

-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here: Miriam Reimer.

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