Heinz Slims Down as Del Monte Bulks Up

Jun 14, 2002

H. J. Heinz plans to spin off several lagging brands including StarKist tuna and 9-Lives cat food to Del Monte Foods in a deal worth about $2.8 billion, reports The New York Times. The agreement will leave Heinz and Del Monte intact as two stand-alone companies, although a big part of Heinz’s products in the United States, representing about $1.8 billion, or 20 percent, of its annual revenue, will be handed over to what both companies are calling the new Del Monte.

Under the deal, Heinz shareholders will get 0.45 share of Del Monte stock for each of their Heinz shares, giving them 74.5 percent of the company. Del Monte will assume $1.1 billion in Heinz debt. By structuring the agreement in this way, the companies said, the transaction can be accomplished tax-free.

Del Monte will nearly double in size with the Heinz products. It says it needs such scale to haggle with ever-expanding retailers like Wal-Mart and to guard against encroachments by competitors.

“I don’t think consolidation has proven itself,” says William R. Johnson, chairman and chief executive of Heinz, which had revenue of $9.4 billion last year. “Getting bigger is not the answer. Getting better is the answer.”

Moderator Comment: Does the Heinz and Del Monte deal signal another round of manufacturer consolidation to come? What has been the impact of consolidation (CPG manufacturers and retailers) on the industry?

Evidently, Del Monte believes bigger is the answer to
that company’s trade relations issues. Richard G. Wolford, chairman and chief
executive of Del Monte is confident his group can invigorate the Heinz brands.
Good luck. [George
Anderson – Moderator

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