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Heinz, Bestfoods talks fail?
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September 15, 1999: 5:20 p.m. ET
Bestfoods denies 'significant' talks; report says negotiations foundered
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NEW YORK (CNNfn) - Talks foundered late Tuesday between H.J. Heinz Co. and Bestfoods, according to a published report, in the food vendors' effort to merge to form the sector's No. 2 company.
The Wall Street Journal, in its Wednesday edition, cited people familiar with the matter saying that the companies hoped to strike a deal by next week, but added the talks could break off. Its online edition later said talks foundered Tuesday night.
Bestfoods, maker of Hellman's mayonnaise and Skippy peanut butter among other products, issued a statement early Wednesday appearing to firmly deny any conversations.
Best Foods said "no significant acquisition or combination discussions are in progress" and it added it was "departing on this occasion from its continuing policy of not commenting on rumors or market activity."
A spokeswoman for Pittsburgh-based Heinz, best known for its namesake ketchup and the vendor of StarKist tuna and Ore-Ida frozen potatoes, declined comment.
Tough going for food business
Food companies have been in a pressure cooker for the last several years, facing declining profits from the slow-growing U.S. population, financial woes and merger mania among their main customers -- supermarkets -- all of which has hurt their ability to set price levels.
It has led to a mounting call from shareholders to their corporate boards to push for consolidations or other ways to lift sagging earnings. Analysts said it has laid the groundwork for the reported talks between Heinz and Bestfoods.
The Journal cited sources close to the talks as saying a deal would be cast as more of a merger than as a purchase. Wall Street appeared happy at that prospect, as shares of Pittsburgh-based Heinz (HNZ) climbed 1-7/16 to 44-5/8; Bestfoods (BFO), of Englewood Cliffs, N.J., rose 4-3/16 to 53-1/8.
Analysts said the prospective negotiations indicated how pressures on food companies have increased recently and that investment bankers are sensing the sector is long overdue for consolidation.
"Ultimately these deals will happen, but I don't see what Bestfoods achieves from merging with Heinz," said Craig Albert, a food sector analyst at Sanford C. Bernstein & Co. In an industry climate this tough, he added, "there's no reason why they shouldn't be having discussions, to try to maximize shareholder value."
Albert, who has a "market outperform" rating on shares of Bestfoods and does not cover Heinz, said operating "synergies" would be a possible outcome from deals between struggling food companies.
Christopher Jakubik, a consumer goods and food products analyst at Warburg Dillon Read, said the possible efficiencies from a combination are not as important as the worldwide scope they would enjoy.
"In my view there is not a lot of synergy here," he said. "It's not about running an extra truck to Wal-Mart each month, it's more about greater access to international markets."
Jakubik has a "strong buy" rating on the shares of Best Foods and a "buy" rating on H.J. Heinz. While each has its predominant presence in North America, Heinz gets about a quarter of its sales from Europe, and Bestfoods about 40 percent.
Bestfoods is seen as attractive, Albert said, because it derives about one-quarter of its profits from developing countries -- meaning it has a strong upside potential. Bestfoods would make a better fit for soup maker Campbell (CPB), Albert said.
Jakubik, who emphasized he is not privy to inside information about the alleged discussions, insisted the statement by Best Foods provides the company enough wiggle room to have had talks without lying.
"You have to look at how it was worded. The statement by Best Foods said that no significant acquisition or combination is in progress," he said. "That could really mean anything."
Only Philip Morris Co.'s (MO) Kraft Foods, with annual sales of $25 billion, would be bigger than a combined Heinz and Bestfoods, whose 1998 sales would have totaled $17.7 billion.
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H.J Heinz
Bestfoods
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