KANSAS CITY — "For those who have followed TreeHouse (Foods), you’ll recall that the American Italian Pasta Company (AIPC) became part of our portfolio with the (Conagra) Private Brands acquisition (in 2016).”
Discussing the impending acquisition of most of the pasta brands currently owned by the Riviana Foods division of Ebro Foods SA, Steven T. Oakland, president and chief executive officer of TreeHouse, sought to place into perspective a deal that will grow his company’s pasta business by about 60%. TreeHouse will be acquiring numerous regional brands such as American Beauty, Creamette, Prince, Skinner and San Giorgio.
For those who have followed the pasta business considerably longer than the four-year period cited by Mr. Oakland, the proposed acquisition may trigger memories of a protracted period of frenetic pasta industry change. What few likely recall is this deal represents a second chance for a major pasta industry transaction attempted 30 years ago — a proposed acquisition of AIPC by Hershey Foods Co.
Most of the brands TreeHouse is buying were at one time owned by independent companies acquired over roughly a 25-year period by Hershey. For instance, San Giorgio’s roots date back to 1914. The Pennsylvania-based company was Hershey’s first pasta acquisition, in 1966. Hershey bought American Beauty in 1984.
By the late 1980s, Hershey was vying with Borden, Inc. for leadership in the pasta category, both companies having rapidly expanded in the market through acquisitions of family-owned pasta makers. As this roll-up strategy was peaking, the establishment in 1988 of AIPC posed a threat. The brainchild of entrepreneur Richard C. Thompson, AIPC was launched with the construction of a large pasta plant and mill in Excelsior Springs, Mo. The plant was far more efficient than the aged facilities Hershey and Borden were operating. Recognizing the risk posed by the upstart, Hershey in late 1989 agreed to acquire AIPC for $76 million.
A few months later plans for the deal were dropped when the US Department of Justice announced its intent to oppose the transaction, warning of the potential “elimination of the newest and most efficient independent manufacturer, which since it entered has offered vigorous competition to the industry’s leaders.”
Hershey’s fears were well founded. The subsequent rapid growth of AIPC as an independent company and the growing popularity in the United States of imported Italian pasta prompted both Hershey and Borden to abandon the pasta business. Hershey’s pasta division was acquired for $450 million by a management group in 1998, creating New World Pasta, a business with annual sales of about $400 million. Afterward, AIPC’s continued growth, together with the emergence and extraordinary success of Barilla USA beginning in 1999, made for tough sledding for New World Pasta, and the company filed for bankruptcy in 2004. Ebro acquired the business two years later.
Meanwhile, AIPC (which had acquired several Borden brands — New World bought the rest, including Prince and Creamette) ran into difficulties during the late 2000s triggered by a surge in low-carbohydrate dieting, and Ralcorp Holdings acquired the company in 2010. Two years later, Conagra acquired Ralcorp.
Most of the dozens and dozens of transactions reconfiguring and re-reconfiguring the pasta industry over the last 40-plus years failed to meet the hopes of the acquirer. While the category tapped and continues to tap into numerous consumer trends, including taste, convenience, nutrition and economy, extraordinary changes — technological and competitive — have transformed the pasta industry landscape from the 1980s. Based on Information Resources, Inc. data, the top selling brand TreeHouse will acquire is Creamette, with about $70 million in annual retail sales. That’s infinitesimal versus the $800 million in pasta sales now generated annually by Barilla America. Still, with its ownership of these brands and attendant strong position in private label (a $631 million annual market), TreeHouse will stand as a major player in the pasta market. With this rich history, a new chapter for the pasta businesses under TreeHouse ownership, brought together after 30 years, will be fascinating to watch.