Del Monte Leaves Canned Foods Business Behind
By Sam Lewis
Consumer goods division of canned foods company sold to Philippines company for nearly $1.7 billion
Del Monte Pacific, the Philippines-based fruit juice company, has made a deal in which it will acquire the consumer foods business of San Francisco-based food producer Del Monte Foods. The deal, totaling $1.68 billion will allow the Pacific company to expand into the Western economy, specifically the U.S., where consumers spending has been on the rise of the last several months.
The two companies with very similar names are unaffiliated. The Oct 11 deal gives the Pacific brand rights to Del Monte Contadina, S&W, and College Inn — canned fruit, vegetable, and broth — food brands within the U.S. These lines create nearly $2 billion in annual sales. “The U.S. was one of a few key markets where our company did not have a direct presence nor have its own brands,” says Del Monte Pacific Chairman Rolando Gapud. The Philippine company already has rights for some of those brands in some parts of Asia. Del Monte Pacific also will benefit from the expansion with its pineapple business. The company operates pineapple plantations which supplies processed pineapple products to Del Monte Foods.
The Pacific company plans to finance the purchase through a $930 million long-term loan. The company will also issue new stock for a newly formed unit created to operate the newly acquired business. The transaction is subject to approval and customary conditions of closing which are expected to be complete by early next year.
Over the last decade, 14 purchases of canned food companies have taken place globally. Del Monte Pacific is paying 0.93 times revenue, exceeding the 0.85 average of the decade’s previous deals, according to Bloomberg. The company is most likely overpaying, and has been advised to invest further into its strengths of emerging markets. “The U.S. economy is improving, but the space is quite crowded, and you should stay with your competitive strengths,” says Siyi Lim, an investment analyst at OCBC Investment Research. “At the end of the day, you are still selling consumer staples, and there is a limit as to what consumers can buy.”
When the deal is completed, Del Monte Foods will be changing its name, making sure there is no uncertainty as to which company is which. In addition, San Francisco-based Del Monte Foods will no longer be part of the canned fruits, vegetables and broth market. Instead, the company plans to focus its efforts on its pet food brands — Kibbles ‘N Bits, Milk Bone, Meow Mix, and 9 Lives to name a few. “I think both companies have realized that Del Monte Foods focusing on pet food, and us focusing on food and beverages, will allow us to max the potential of both businesses,” says Luis Alejandro, Del Monte Pacific’s CEO.