International Multifoods Corp. (NYSE: IMC) today announced that it is taking the following actions to focus the company on its North American grain-based food manufacturing businesses and enhance shareholder value:
- Acquire Pillsbury’s desserts and specialty products portfolio, Pillsbury’s non-custom foodservice baking mix business and General Mills’ U.S. Robin Hood brand, which have combined net sales of about $450 million, for approximately $305 million in cash.
- Explore strategic alternatives for Multifoods’ foodservice distribution business.
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The acquisition is expected to significantly increase the company’s operating earnings, earnings per share and Economic Value Added (EVA) in the first full year after closing.
“Our overriding objective continues to be to enhance shareholder value,” said Gary E. Costley, International Multifoods chairman and chief executive officer. “These businesses are an excellent fit with our existing manufacturing operations and grain-based foods expertise. They give us immediate scale and brand strength to be a market leader in the $2 billion U.S. retail baking products category.
“Adding these high-quality, branded consumer products to our portfolio will improve our margins and give us a more predictable earnings stream,” Costley said. “Most important, these businesses represent a terrific platform on which to fuel future growth. Over the last four years, our current manufacturing businesses have delivered compound annual operating earnings growth of 23 percent. Acquiring these new businesses at an attractive valuation gives us excellent opportunities to deliver sustainable improvements in financial performance and create shareholder value over time.”
The company estimates the incremental per-share earnings impact of the acquisition to be at least 18 cents accretive in the first full year after closing, at least 25 cents in the second year and at least 45 cents in the third. Incremental earnings per share before goodwill and other intangible amortization are expected to be at least 53 cents accretive in year one, 60 cents in year two and 80 cents in year three.
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By GlobalDataIn addition, the company said today that it has received commitment letters from CIBC World Markets to provide financing totaling $650 million and that it will eliminate its quarterly dividend of 20 cents per share in anticipation of the closing of the acquisition.
About the Acquisition
International Multifoods has entered into a definitive agreement with General Mills and Pillsbury to acquire the Pillsbury and Martha White U.S. retail desserts and baking mix businesses, the Hungry Jack branded potato mix and shelf-stable breakfast product lines, certain Pillsbury-branded foodservice baking mix products and General Mills’ U.S. Robin Hood flour business for approximately $305 million in cash. The Pillsbury Company will continue to use the Pillsbury brand across its other existing product lines.
The company will account for the acquisition as a purchase. Multifoods’ acquisition of these businesses is contingent on Federal Trade Commission approval, closing of General Mills’ acquisition of Pillsbury and completion of the financing.
The Pillsbury desserts and specialty products businesses have leading market positions in a number of retail categories. Pillsbury holds the No. 2 market share position in desserts and baking mixes. Hungry Jack holds the No. 1 or No. 2 share positions in mashed potato mixes, specialty potato mixes, and pancake mixes and syrup. In addition, Pillsbury’s non-custom foodservice baking mix business holds the No. 2 market position.
“These businesses give us significant size and a top-tier presence in categories that we already know well,” Costley said. “Our Canadian business, Robin Hood Multifoods, is a market leader in consumer and commercial grain-based products in Canada. We are excited to add to our business mix some of the most valuable and recognizable brands in the packaged foods industry — brands that have loyal consumer bases, tremendous retail support, market leading positions and strong financial performance.
“This acquisition also increases our foodservice manufacturing sales in the United States,” Costley said. “Now, with a U.S. retail presence, we will have better consumer insight that we can use to make our foodservice customers more successful.”
Costley added, “We see numerous opportunities to drive growth by focusing on expanding distribution channels, new product development, and new marketing and brand-building initiatives. We also expect to realize synergies and other benefits by owning the Robin Hood brand across all of North America. As part of an organization dedicated to growing its grain-based foods business over the long term, we believe the potential of these brands is significantly improved.”
Reporting, Organizational Structure. Multifoods’ newly formed U.S. branded consumer foods business will be run as a separate business unit. Its results will be incorporated into Multifoods’ North America Foods group, which would have pro forma annual net sales of approximately $950 million. After the combination, consumer foods will account for about 55 percent of North America Foods’ sales and foodservice manufacturing the remaining 45 percent.
James H. White, a consumer foods veteran who is currently category vice president, shelf-stable products, Green Giant frozen and emerging channel development at The Pillsbury Company, has accepted the position of president of International Multifoods’ U.S. consumer foods business, contingent on the closing of the acquisition. White will report to Costley.
“One of the key attractions of this acquisition is the expertise of Pillsbury employees,” Costley said. “We look forward to adding years of consumer foods knowledge and expertise to our team.”
The Pillsbury foodservice business will be integrated with Multifoods’ U.S. Foods foodservice manufacturing business, and the General Mills’ U.S. Robin Hood business will be combined with Multifoods’ Robin Hood operation in Canada.
As part of the agreement, International Multifoods will purchase equipment from General Mills and Pillsbury to produce various dessert and baking mix products.
Multifoods has negotiated an agreement with Crossmark Inc., a national brokerage firm, to manage all sales, distribution and in-store service of the Pillsbury and Robin Hood products with U.S. retail customers. Crossmark currently works with Pillsbury to provide relationship management and in-store service for customers. The new agreement broadens the scope of Crossmark’s services.
U.S. Bancorp Piper Jaffray Inc. is acting as financial advisor, and Faegre & Benson LLP is acting as legal advisor to International Multifoods on the acquisition.
New Financing, Dividend Elimination
International Multifoods said today that CIBC World Markets, which provided financial advice, has given the company commitment letters to finance the acquisition and to replace the company’s existing revolving credit facilities and other debt. The new credit facility is expected to include a secured revolving line of credit, as well as both secured and unsecured, floating- and fixed-rate term debt.
In light of the acquisition opportunity, the company said that it will eliminate its quarterly cash dividend.
“As an EVA company, our philosophy is to allocate the company’s resources to generate the highest, risk-adjusted returns to shareholders,” Costley said. “This acquisition, which is a higher-return use of our cash, will provide meaningful earnings growth and, therefore, superior value to shareholders.”
Exploration of Strategic Alternatives for Foodservice Distribution Business
International Multifoods is exploring strategic alternatives for Multifoods Distribution Group (MDG). Headquartered in Denver, MDG has annual sales of about $2 billion and employs approximately 2,500 people. MDG is the largest and only national distributor to vending operators. It also holds leadership positions in the independent pizza and sandwich shop foodservice segments.
“We have taken steps over the last four years to simplify the company and sharpen its focus,” Costley said. “The decision to explore strategic alternatives for our distribution group is a continuation of that process.”
4th Quarter Outlook
International Multifoods expects fourth-quarter earnings to be in the range of 15 cents to 18 cents per diluted share, compared with 37 cents per share a year ago. Full-year diluted earnings for the fiscal year ended March 3 are expected to be between $1.16 to $1.19 per share. The company will report its fourth-quarter financial results March 28.
The company said that its revised outlook is due to the continuation of higher payroll, fuel and utility costs, primarily in the distribution group, and ramp-up costs and timing of new business that the company began to serve during the quarter. In December, Multifoods announced the addition of $150 million in new foodservice distribution business and $20 million in new foodservice manufacturing business. Higher interest expense associated with the build-up of inventories to serve the new business also is affecting results. In addition, the company experienced competitive pricing pressures during the holiday season in its Canadian consumer flour business, which resulted in softer sales volumes.
The company will provide further guidance on next year’s outlook when it announces actual fourth-quarter results at the end of March.
About International Multifoods
International Multifoods is a manufacturer for and distributor to the foodservice industry in North America. The company also is a leading manufacturer and marketer of consumer foods in Canada. Further information about International Multifoods is available on the Internet at http://www.multifoods.com.
Forward-Looking Language
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations or beliefs, including, but not limited to, statements concerning the company’s operations and financial performance and condition. For this purpose, statements that are not statements of historical fact may be deemed to be forward-looking statements. The company cautions that these statements by their nature involve risks and uncertainties, and actual results may differ materially depending on a variety of important factors, including, among others, actions in the financial markets; regulatory approvals; the impact of competitive products and pricing; market or weather conditions that may affect the costs of grain, cheese, other raw materials and fuel; changes in laws and regulations; fluctuations in interest rates; fluctuations in foreign exchange rates; the company’s ability to increase the distribution group’s sales and reduce delivery and distribution costs, and realize the earnings benefits from the distribution group’s consolidation and expansion plans; risks commonly encountered in international trade; and other factors as may be discussed in the company’s Report on Form 10-K for the year ended Feb. 29, 2000, and other reports filed with the Securities and Exchange Commission.
EDITORS NOTE: Additional information on the brands and businesses, as well as print-ready product shots and other images, is available at www.multifoods.com/newsroom.
BACKGROUNDER
Pillsbury Mix Businesses, Robin Hood Business:
Strong Brands, Market Positions
Pillsbury Desserts and Specialty Products Portfolio. The Pillsbury desserts and specialty products portfolio consists of the Pillsbury-branded desserts and baking mix businesses, the Martha White desserts and baking mix businesses, and the Hungry Jack potatoes and dry breakfast businesses.
The Pillsbury-branded desserts and baking mix product line includes cake mixes, ready-to-spread frosting, brownie mixes, cookie mixes, muffin mixes, quick bread mixes and a wide variety of flour. In aggregate, the Pillsbury brand holds the No. 2 overall national market share position in desserts and baking mixes.
The Pillsbury Company will continue to use the Pillsbury brand across its other existing product lines.
The Martha White product line includes muffin mixes, brownie mixes and scratch ingredients, such as flour, cornmeal, cornbread, pizza crust mix and shortening. Several of the Martha White products are co-branded with the Gladiola brand. Martha White also offers a variety of grits under the Jim Dandy brand. Martha White is a market leader in the southeastern United States, holding the No. 1 position in pouch muffin mix sales in the region.
The Hungry Jack brand is a leading provider of convenient, high-quality potato and dry breakfast products. The Hungry Jack product line includes shelf-stable specialty potatoes, mashed potatoes, pancake mixes and syrup. The business also offers a value-priced line of potato products under the Idaho Spuds brand and a line of Pillsbury-branded mashed potatoes. Hungry Jack holds the No. 1 market share position in the core mashed potato segment, the No. 2 market position in specialty potatoes and the No. 2 position in pancake mixes.
Pillsbury Non-Custom Foodservice Baking Mix Business. The Pillsbury non-custom foodservice baking mix product line comprises a wide variety of dry mixes for items such as cakes, muffins, pancakes, biscuits, breads, brownies, cookies and gravies. The mixes are sold, in units up to seven pounds, through foodservice distributors. Pillsbury holds the No. 2 market position in foodservice baking mixes.
The Pillsbury Company will continue to use the Pillsbury brand across its other foodservice product lines.
General Mills U.S. Robin Hood Brand. General Mills’ Robin Hood business in the United States includes both consumer and commercial flour offerings, the majority of which is sold in states contiguous to Canada. Multifoods owns the Robin Hood brand in Canada, where it is the market leader in consumer and commercial foodservice grain-based products, and is recognized as the baking expert.
