Post to buy Michael Foods for $2.45 billion
April 17, 2014
by Monica Watrous
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ST. LOUIS — The buying binge continues for Post Holdings, Inc., which has agreed to acquire Michael Foods Group, Inc., a producer and distributor of eggs, potatoes and dairy products, for $2.45 billion from affiliates of GS Capital Partners, affiliates of Thomas H. Lee Partners and other owners.
The deal represents the largest transaction to date for Post, which has steadily padded its portfolio over the past year with such products as protein bars, peanut butter and pasta.
In February, Post agreed to acquire the PowerBar and Musashi brands and related worldwide assets from Nestle S.A., Vevey, Switzerland. Financial terms of the transaction were not disclosed. Also in February, Post paid more than $680 million for Golden Boy Foods Ltd. and Dymatize Enterprises, L.L.C. In January, the company completed its acquisition of Dakota Growers Pasta Company, Inc. from Viterra, Inc. for $370 million. Dakota Growers Pasta manufactures a full line of dry pastas for retail, food service and food processors, including whole grain and organic items. In September 2013, the company acquired the Premier Nutrition Corp., Emeryville, Calif., for $180 million. In late May the company acquired the branded and private label cereal, granola and snack assets of Hearthside Food Solutions L.L.C., Downers Grove, Ill., for $158 million, and last January Post acquired Attune Foods, San Francisco, for an undisclosed amount.
“Post is obviously showing it’s on an acquisition path, and that’s a core business strategy for them, based on what they’ve done and are continuing to do,” said Matthew O’Loughlin, a partner with Manatt, Phelps & Phillips, L.L.P., who counsels public and private companies, investors and private equity groups in the food and beverage industry. “What this particular acquisition seems to offer them is not only a different product line into the egg and dairy sectors, but also some distribution relationships and distribution channels, which they can leverage for other products.”
With a leading presence in food service, retail and food ingredient channels, Minnetonka, Minn.-based Michael Foods produces value-added egg products, refrigerated potato products and cheese and other dairy case products under such brands as Papetti’s, All Whites, Better ‘n Eggs, Easy Eggs, Simply Potatoes and Crystal Farms. The acquisition underpins Post’s strategy of diversifying its business and capitalizing on consumer trends of increased protein consumption and away-from-home breakfast occasions.
“As a company, obviously Post’s core business is not the active value-added foods sector; it’s cereal,” Mr. O’Loughlin said. “So, it looks like this is somewhat consistent with their core business. It’s going into the area of egg and dairy, which is very different than cereal. It has its own challenges and its own network and everything else. It is an interesting option for them, but I think it just goes to the point that they’re really just trying to build a diversified food business, and in this case, they are trying to acquire something that is very big for them. They’re buying a company valued basically at what they’re valued at, which is a very large acquisition.”
Under the terms of the agreement, Post will acquire Michael Foods on a cash-free, debt-free basis, subject to working capital and other adjustments. The transaction is expected to close in the second calendar quarter of 2014. Post expects to realize approximately $10 million in synergies benefitting from Michael Foods’ scale.
GS Capital Partners, a division of the Goldman Sachs Merchant Banking Division, acquired Michael Foods in 2010 for approximately $1.7 billion. The seller was Thomas H. Lee Partners L.P., which had bought Michael Foods in 2003 and retained an ownership stake of approximately 20% as part of the transaction.
For the fiscal year ended Dec. 28, 2013, Michael Foods had net earnings of $50,364,000, up 67% from $30,094,000 in fiscal 2012. Net sales for the year increased 5% to $1,948,283,000 from $1,856,054,000.
Michael Foods’ management team will remain, led by chief executive officer Jim Dwyer.
“The entire Michael Foods team is excited to join Post Holdings,” Mr. Dwyer said. “We believe our business will benefit from Post's portfolio management approach of effectively and efficiently investing in profitable growth and margin expansion. I'm delighted to be joining the Post team.”