HJ Heinz and at least one other group are believed to be interested in buying up the pickle business of Vlasic Foods International; a deal estimated to be worth around US$200m and a last ditch attempt to prevent Vlasic sliding into bankruptcy.
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Family-controlled Vlasic is currently the leader of a troubled market. Born out of a spin off from Campbell Soup in 1998, it carved out a 34% share of the US pickle market, dominating the likes of Kraft and Dean Foods, but has not been able to recover from the US$560m debt incurred during the spin off.
In the last financial year, earnings before interest and tax on Vlasic’s grocery businesses fell from 1999’s figure of US$35.6m down to just US$6.9m. Similarly, frozen food earnings tumbled 73% from US$40m in 1999 to US$10.7m.
Under pressure now to meet an interest repayment of US$10m on current debt of US$500m, due at the end of January, Vlasic has been forced to consider the sale of all or part of its pickle and frozen food businesses. The auction is expected to lead to a deal within the next two weeks.
The frozen food brand Swanson is thought to have attracted interest from other quarters, but sources believe it may not be a swift sale.
During the company’s early years, pickle was extremely important to Heinz. Now strong in the ketchup and condiments markets, both Vlasic’s pickle operations and its Open Pit barbecue sauce brand will be attractive acquisitions to Heinz’s portfolio.
Some doubts have been expressed as to whether the buyout would be prudent given Vlasic’s troubles, but analysts from Prudential argue that “extensive” financial synergies will deliver operational cost cuts.
More cynical analysts maintain however that a sale of this scale still “may not prevent Vlasic from heading into bankruptcy.”
