Pinnacle Foods (PF) Eyes Two Potential Acquisition Targets
Pinnacle Foods (PF), the company best known for Vlasic Pickles and Swanson TV dinners, is an often overlooked name in the processed foods sector. However, Pinnacle has recently attracted some attention with its eagerness to make two major purchases to expand its product portfolio - Unilever's (UL) Wish-Bone salad dressing and Del Monte Foods' canned food business.
Pinnacle Foods was founded in 1998, and was originally known as Vlasic Foods International. It later merged with Aurora Foods and tied together the Vlasic Pickles, Open Pit and Swanson brands that were originally owned by the Campbell Soup Company (CPB
). Products from Pinnacle Foods are reportedly found in over 85% of American households. Daily Chart
Pinnacle recently expressed intense interest in acquiring the Wish-Bone salad dressing brand from consumer goods conglomerate Unilever, which has been slimming down its overseas operations and selling off its food brands to focus on offering personal care products to emerging markets. Unilever notably sold off Skippy peanut butter to Hormel (HRL
), and exited the U.S. frozen foods business. The sale of Wish-Bone, which is being managed by Goldman Sachs GS, could come in between $400 to $500 million, a hefty purchase for a company that only has $132 million in cash and $2.61 billion in debt. Even then, it must outbid B&G Foods BGS, which is also interested in adding Wish-Bone to its product portfolio. Post Holdings (POST
) and Clorox (CLX
) notably passed on the deal after initially expressing interest. Wish-Bone was originally purchased by Lipton in 1958, and became part of Unilever after it acquired Lipton in 1972. Pinnacle also expressed interest in acquiring Del Monte Food's canned food business, which could be worth as much as $1.5 billion - which means that Pinnacle will need to take on significant debt to complete the deal. Del Monte is interested in selling its canned food business so it can concentrate solely on its pet food business, which includes popular brands such as Milk-Bone and Kibbles n' Bits. Del Monte's reason for selling its canned food business is simple - pet product sales rose 8% last quarter, compared to an anemic 0.7% gain in its consumer products division. Another interested party is Fresh Del Monte (FDP
), which sells fresh-cut fruit and vegetables. Fresh Del Monte is interested in diversifying its portfolio to balance out iexpenses, after rising costs of bananas took a bite of its revenue last quarter. Last quarter, Pinnacle's revenue declined 0.6%, but its earnings surged 159.9% as operating margins came in at a robust 14.24%. The stock trades at 14.64 times forward earnings with a 5-year PEG ratio of 1.34 - reasonable growth metrics that suggest that the stock, which is already up 10% over the past year, could continue rising. Pinnacle also pays a quarterly dividend of $0.18 - a 2.95% yield at current prices. Other News About PF Del Monte Foods Attracts Interest From Fresh Del Monte, Pinnacle
Is it wise for Del Monte to sell its canned foods division? Pinnacle and Fresh Del Monte Explore Canned Foods Purchase
Will this acquisition help or hamper Pinnacle's growth? Other Stocks in the News Will This Grocer's Upscale Investment Pay Off?
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Published on Jul 19, 2013
By Leo Sun