Post Holdings, which was recently linked with the possible acquisition of US food peer Lamb Weston, has adjusted its approach to M&A.
While president and CEO Rob Vitale flagged the prevailing common themes among food manufacturers of late, he also said last week that “uncertainty in the capital markets complicates M&A valuations”.
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As Vitale discussed Post’s second-quarter results with analysts alongside his executive team, COO Jeff Zadoks provided more colour in the wake of the company’s deal last year for Potato Products of Idaho (PPI), a producer of refrigerated and frozen potato products similar to Lamb Weston.
“The recent tariff actions and volatility in capital markets have slowed what was an active M&A pipeline for us,” Zadoks said on a conference call.
“The uncertainty in this environment points to smaller tactical transactions such as our recent acquisition of PPI, or transactions where we have clear line of sight to synergies.”
Post did not reveal at the end of last year the price it paid for PPI, but Zadoks’ comments suggest any potential deal for Lamb Weston is off the cards for now.
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By GlobalDataWhen contacted by Just Food in December to comment on the Lamb Weston speculation Post did not respond. Reuters reported at the time, quoting unnamed sources, that Post had hired investment bankers to explore ‘a possible transaction’.
It was not the first time that Post, which owns brands such as Simply Potatoes and Bob Evans Farms, had expressed an interest in acquiring New York-listed Lamb Weston, a branded and private-label supplier of frozen potato products.
A report emerged from The Wall Street Journal in 2016 that Post Holdings was reputedly eyeing up Lamb Weston when it was still part of what was then ConAgra Foods. However, those talks eventually stalled, sources for the WSJ said at the time.
Lamb Weston has been under pressure of late. Most notably from its reputedly largest shareholder, the US-based investment firm Jana Partners.
As the potential Post interest in Lamb Weston emerged in December, Jana Partners urged the French fries maker to launch a “review of strategic alternatives”, including a sale of the business.
“We believe Lamb Weston’s board and management have wasted the chance to sustain and grow shareholder value in a high-quality business,” the investment group said at the time.
In addition, Jana Partners said in October that Lamb Weston’s shares were “undervalued and represent an attractive investment opportunity”, citing the “litany of self-inflicted missteps that have led to underperformance for shareholders”.
Lamb Weston’s shares are down 23% so far this year, while shares in Post have lost around 2%.
“We performed well in a difficult environment. I expect that to continue,” Vitale said last week as the results showed a decline in volumes for grocery, including breakfast cereal and pet food.
“Consumer sentiment is weak. We expect we will need to focus on demand drivers and flawless supply chain execution,” the CEO added.
Post Consumer Brands (PCB) is the largest business area for the company – cereals, pet food and shelf-stable items like peanut butter in North America – sitting alongside divisions for refrigerated retail food products such as eggs, the UK cereal business Weetabix and foodservice.
Zadoks indicated last week that the PPI business was also facing some pressures.
“What we’re seeing in the category is there’s a trade down that’s occurring with private label, which is a phenomenon that has not been an issue in that category years ago,” the COO said.
“What we saw years ago was that private label really didn’t have the quality and it would come in and out, but it never really stuck. This time around, we’re seeing that private label has better quality and it’s taking some demand away from products like ours.”
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