US: Ralcorp's Gelit purchase for benefit of US operations - analysts

By Michelle Russell | 19 June 2012

Analysts do not believe Ralcorp will look to become a “sizeable” player in the European private-label space

Analysts do not believe Ralcorp will look to become a “sizeable” player in the European private-label space

Ralcorp Holdings' motive for tits purchase of Italian private-label frozen ready meals maker Gelit may have been to gain access to alternative channels in the US, according to analysts.

The US private-label producer yesterday (18 June) announced the purchase of Cisterna di Latina-based Gelit. The company, which employs around 130 staff, produces frozen ready meals for sale to wholesale and retail customers in the US and Italy.

Barclays Capital analyst Andrew Lazar believes the acquisition is a "sound" one, from both a financial and strategic perspective, and one that is consistent with recent commentary from private label players pointing to the likelihood of smaller deals in the near-term.

From a strategic standpoint, however, Lazar said he does not believe Ralcorp will look to become a "sizeable" player in the European private-label space through the acquisition.

"Instead, with a large portion of Gelit sales in the US, we view this as a way to gain access to alternative channels, utilise its existing AIPC sales force to increase distribution, and leverage Gelit's frozen technology across the broader business."

BMO Capital Markets analyst Amit Sharma echoes the same sentiment.

"This is not the first deal in Europe for Ralcorp. When they bought AIPC it had some business in Italy also, so it's a continuation of rounding up of the portfolio. It's also about taking what it has in Italy and bringing it over to the US rather than just being a big player in Europe.

"I don't think strategically they are looking to become a bigger player in Italy, they have this production facility available in Italy and they are probably thinking 'how can we transfer that technology and production process and bring it to the US on a larger scale'?"

Sharma believes Ralcorp is likely to make further acquisitions in Europe, however, only "here and there", and if they are "interesting". But he added: "The focus is going to be in the US and not Europe."

Sectors: Chilled foods, Mergers & acquisitions, Private label

Companies: Ralcorp Holdings, AIPC

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