Bloomberg News

Hormel Jumps on Deal to Buy Skippy Peanut Butter: Chicago Mover

January 03, 2013

Jan. 3 (Bloomberg) -- Hormel Foods Corp., the maker of Spam lunchmeat, rose to a record after agreeing to buy the Skippy peanut-butter business from Unilever for about $700 million to expand further into China.

Hormel climbed 3.7 percent to $33.20 at the close in New York, the biggest gain since February 2010 and the highest price since it began trading publicly. The purchase of the second- biggest U.S. peanut-butter brand with $370 million in annual sales will “modestly” boost profits in the current financial year and add 13 to 17 cents a share in fiscal 2014, Austin, Minnesota-based Hormel said today in a statement.

The deal is a “significant opportunity,” Hormel Chairman and Chief Executive Officer Jeffrey M. Ettinger said in the statement. “The fast-growing international line will also strengthen our global presence and should be a useful complement to our sales strategy in China for the Spam family of products.”

Hormel will look to build Skippy’s sales in China, where it’s the biggest peanut-butter brand. The company has doubled Spam’s overseas revenue in the past five years as it entered markets such as Japan, where slices of Spam are slapped on rice and bundled with seaweed for a dish called spam musubi. Hormel has positioned Spam as an upscale treat in China, with ads that promise “juicy, meaty satisfaction.”

Skippy has successfully sold peanut butter as an ingredient for main courses, not just a spread. In China, peanut butter is put on noodles and to flavor hot dishes. While the Skippy name is on the peanut butter jars in China, its Chinese brand name is Four Seasons Treasure.

Competing Bids

The unit attracted interest from Post Holdings Inc., according to a person familiar with today’s deal who asked not to be named because the talks were private. Post didn’t immediately return a call seeking comment.

Skippy also got interest from U.S. companies B&G Foods Inc., ConAgra Foods Inc. and Pinnacle Foods Group LLC, people familiar with the matter said in November.

Lazard Ltd. said it advised Unilever on the sale. Unilever got legal advice from Cravath, Swaine & Moore LLP. Barclays Plc provided financial advice to Hormel.

“B&G simply could not compete with a suitor that placed a high value on Skippy’s China business,” analysts at RBC Capital Markets led by Edward Aaron in Denver said in a note today “At $700 million, this deal would not have made sense” for B&G.

Buyers from outside the sandwich-spreads category were sought, according to the person familiar with the deal. Unilever had five second-round bids and had tight competition to buy Skippy right up until the end, which gave Unilever a higher price, the person said.

Jif Rivalry

Hormel knows how to market iconic brands such as Spam, and Skippy will give the company a boost in the snack category, Ettinger said today in a telephone interview. Hormel plans to come up with new Skippy products, he said.

“We’re turning the marketing and sales teams loose,” Ettinger said.

Having a “non-meat protein” benefits Hormel’s grocery and international businesses and adds to the company’s “balanced business model,” he said.

Skippy trails J.M. Smucker Co.’s Jif brand in the $2 billion U.S. peanut-butter market. ConAgra’s Peter Pan brand is third. Skippy gets $100 million of its $370 million in annual sales from outside the U.S., Hormel said today.

The transaction includes Unilever’s Skippy manufacturing facilities in Little Rock, Arkansas, and Weifang in China’s Shandong province.

Norman Rockwell

The deal comes as London- and Rotterdam-based Unilever sharpens its focus on faster-growing beauty products such as TRESemme shampoo.

Unilever’s food business, which includes brands such as Hellmann’s mayonnaise and Ragu pasta sauce, accounts for about 27 percent of the company’s revenue. That doesn’t include sales from the separate refreshment unit, which distributes ice cream and tea. Food was Unilever’s only segment to post a decline in sales by volume in the first nine months of 2012.

Skippy debuted in 1932 and once hired artist Norman Rockwell to illustrate its print advertisements. Actress Annette Funicello appeared in Skippy television commercials in the late 1970s. Unilever acquired the brand when it bought Bestfoods for $22.7 billion in 2000.

While the brand is iconic, competing with Jif -- a former Procter & Gamble Co. brand -- has been tough, according to Bryan Gildenberg, an analyst with London-based consulting firm Kantar Retail UK Ltd. Jif has been the top-selling peanut butter since 1981, and has maintained its lead by introducing varieties with lower sodium and reduced fat.

To contact the reporters on this story: Matthew Boyle in London at mboyle20@bloomberg.net; David Welch in New York at dwelch12@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net


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