Deal or no deal: Pinnacle touted amid Ragu rumours
Unilever is rumored to be looking to divest of Ragu.
Rumour has it Unilever is looking to sell its Ragu pasta sauce brand, and though the Anglo-Dutch firm has taken a vow of silence over the whole issue, just-food's Hannah Abdulla weighs up a number of reasons why it could be looking to dispose of the brand.
Ragu has had a question mark hanging over it since 2011 when Unilever sold the UK and Irish rights to both it and Chicken Tonight to UK firm Symington's.
The brand leads pasta sauce market in the US (another Unilever brand, Bertolli, is at number two) and the category is expected to see some growth over the next four years.
However, David Murray, partner for transaction advisory services at Ernst and Young, believes Unilever has accepted Ragu is not one of its strongest performing or "core" brands and hence has taken the decision to shed it. For some time now, Unilever has been steadily offloading food assets. Most recently, the consumer goods giant last month agreed to sell its meat snacks business to US beef jerky firm Jack Link's.
Other disposals over the last three years include the Wish-Bone salad dressings business to Pinnacle Foods, Skippy peanut butter to Hormel Foods and four US brands to local group B&G Foods.
There has also been speculation Unilever is thinking of getting rid of the Slim-Fast, although the company has so far refused to comment - as it has on the Ragu rumours.
Food is admittedly not the strongest area for Unilever. For fiscal 2013 underlying sales were up a meagre 0.3%. There have been countless comments over the last year from Unilever bosses that the firm is looking to "sharpen its portfolio".
CEO Paul Polman said in January that, despite the recent sales, there was "still a drag" from "non-core parts of the portfolio".
Murray says Unilever is, like many branded food companies, looking at its portfolio and identifying brands that under-performing the rest of ths business. For Ragu, Murray argues, competition from private label has had an impact, even in the US, where the brand is category leader.
"Ragu has come under pressure from cheaper own-label pasta sauces and hence volumes and profits have declined," he says. "Own label has grown extensively in the US over the last 5 years and so it has been difficult to maintain the volumes and profitability of Ragu."
According to a report by Bloomberg citing industry sources, Unilever expects to sell the brand for between $1.5bn and $2bn. Unilever refused to comment when approached by just-food.
Heinz, Kraft Foods Group and Pinnacle Foods have all been named as companies that could be interested in Ragu.
Sanford Bernstein analyst Alexia Howard believes Pinnacle is the most likely as it "could be looking to increase its shelf stable exposure".
Pinnacle purchased the Wish-Bone salad dressings brand from Unilever at the end of last year and Murray says that deal meant "there is a relationship there that might benefit them".
Kraft, he argues, may not be "in the market for an asset like this". Bernstein agrees, contending Kraft seems "to be more focused on its existing portfolio and health and wellness innovation". However, Sanford Bernstein concedes: "Ragu may provide a welcome boost to the top line,"
Murray and Howard agree Heinz is the least likely of the two to move to buy the brand. Heinz, adjusting to life under the ownership of 3G Capital and Berkshire Hathaway, "is in the middle of a performance improvement exercise", Murray says, and is "more likely to sell than buy" at present.
Sanford Bernstein's Howard suggested a fourth possible suitor - US food group JM Smucker.
"Sizeable acquisitions from companies focused on HPC have been a theme for Smucker's historically," Howard says, adding Ragu could be "a good fit".
However, Murray seemed unsure with the Smucker's portfolio being mainly "sweet based".
Of the four, Murray has his money on the new owner of Unilever's former salad dressings business. "Pinnacle would be my bet. It is looking to acquire, has a history with Unilever since the last deal, and has a similar category and distribution."
- Does Kraft Heinz want to swallow Unilever whole?
- Focus: Nestle CEO plan to balance sales, earnings
- Will Kellogg's DSD exit help it grow in US snacks?
- Comment: Meal kits in US - don't believe the hype
- Is Mondelez's margin target hurting sales?
- Nestle plans restructuring as 2016 profit misses
- Kraft Heinz pursuing Unilever in takeover move
- Kraft Heinz returns to organic growth, ups margins
- Danone eyes efficiency, agility with new structure
- General Mills issues profit warning