US food manufacturers HJ Heinz and Del Monte have agreed a US$1.8bn deal which will see Heinz spin off some of its underperforming businesses and merge them with Del Monte.

The units involved are Heinz' North American pet food and pet snacks, US tuna, US private label soup and infant feeding businesses. Brands to go include Kibbles 'n Bits, 9-Lives, StarKist and Pup-Peroni.

Together, the businesses to be divested generate US$1.8bn in annual revenues, corresponding to a fifth of total revenues.

The spun-off businesses will be merged with Del Monte in an all-stock transaction. Heinz stockholders will receive 0.45 Del Monte shares for each Heinz share. This will leave 74.5% of shares in the new Del Monte in the hands of Heinz shareholders, with Del Monte shareholders holding 25.5%.

Heinz will unburden itself of US$1.1bn of debt in the process. The group has been under intense pressure for several years to pump up sales and profits. The move is "designed to make Heinz a simpler, more focused, more predictable and faster growing company," said Bill Johnson, Heinz chief executive

The market read the deal differently, however. Heinz shares were down US$2.05 at US$39.55 by yesterday's [Thursday] close in New York, partly on news that Heinz would slash its dividend by a third to reflect the reduced size of the business and fund increased investment.