Unilever feasts on deals
Consumer goods firm consumes Slim-Fast, tops it off with Ben & Jerry's
LONDON (CNNfn) - Consumer goods conglomerate Unilever set the table for the quintessential Jack Sprat and his wife Wednesday, striking separate deals to acquire U.S. diet-food specialist Slim-Fast Foods and novelty ice cream maker Ben & Jerry's Homemade Inc.|
First, Unilever, Europe's No. 1 consumer-goods maker, bulked up its food division by agreeing to acquire Slim-Fast for $2.3 billion in cash, boosting its presence in one of the industry's fastest-growing segments.
The Anglo-Dutch company topped off that deal by agreeing to initiate a tender offer to purchase Ben & Jerry's, the creator of such quirky flavors as Cherry Garcia, Chocolate Chip Cookie Dough and Phish Food, for $326 million cash -- ending a much-rumored courtship of the popular ice cream maker.
In both cases, company officials stressed their desire to move quickly to capitalize on the potential growth in overseas markets, while holding onto both company's dominate market share in each category.
Unilever slims down its portfolio
In the case of Slim-Fast, Unilever (UN: Research, Estimates) said it is targeting the health and diet-food market as part of a huge restructuring program announced in February. The company is cutting its worldwide portfolio of brands by three-quarters to about 400 products, and shedding 25,000 jobs. The London-based company's best-known food and household products include Lipton's tea and Dove soap.
Florida-based Slim-Fast, founded in 1990, is best known for its own-brand shakes and snack bars, and also operates a popular weight-management program which has expanded online.
Slim-Fast accounts for about 45 percent of the $1.3 billion-a-year U.S. health-food and weight-management market. Unilever said Slim-Fast had outperformed the market's 20 percent annual growth rate over the last three years. It said the purchase would enhance earnings from 2003 and be financed from existing reserves and new borrowings.
Privately-held Slim-Fast generated sales of $611 million and operating earnings of $125 million in the 12 months to end-November 1999. Unilever said it planned to expand Slim-Fast's overseas presence: it generated just 6 percent of sales from outside North America last year.
Unilever's expansion in the diet-food business comes after rival H.J. Heinz †(HNZ: Research, Estimates) last year reduced its presence to the market, selling the bulk of its Weight Watchers unit to a group of private investors for $750 million.
Company officials said they will continue to explore other acquisitions that† add strong brand names to Unilever's portfolio.
"There's been no reduction in the intensity of efforts of us looking at transactions, but transactions have to create value for shareholders," Howard Green, Unilever's director of investor relations, told analysts in a conference call. " We do want them to be in existing categories or adjacent to them."
'Scooping' the competition
The Ben & Jerry's agreement, which is worth far more than the $270 million deal that has been rumored on Wall Street the past few weeks, calls for the South Burlington, Vt.-based company to operate as an independent entity from Unilever's current U.S. ice cream business, which includes the Breyer's, Good Humor and Klondike brands.
In addition, Ben & Jerry's also will maintain an independent 11-member board focusing primarily on the company's social causes.
The company, founded by ex-hippies Ben Cohen and Jerry Greenfield, currently donates 7.5 percent of its annual profits to charitable causes, a practice that will continue under the new arrangement, although the donation percentage will now be based on international, and not just domestic, sales.
Analysts said the deal would allow Ben & Jerry's, which was launched 20 years ago in a renovated gasoline station, to maintain if not grow its current one-third share of the domestic U.S. super-premium market, while providing the company additional leverage to expand its operations overseas.
"It appears to be a terrific deal for Ben & Jerry's shareholders," said Jim Barrett, an analyst with Josephine & Co. "Ultimately, what the acquisition proves is that strong powerful brands are very, very strong franchises."
"For the Ben & Jerry's franchise, what they have now is new access to every corner of the world and that is really the thrust of the deal," said Jeff Kanter, an analyst with Prudential Securities.
Cohen, Greenfield retain undisclosed role
Terms of the agreement call for Unilever to submit a tender offer next week offering $43.60 cash for each outstanding Ben & Jerry's (BJICA: Research, Estimates) share. The transaction price represents a nearly 25 percent premium over Ben and Jerry's closing price of 34-15/16 Tuesday.
The agreement calls for both Cohen and Greenfield to disseminate Ben & Jerry's social activism across Unilever's international franchise. Current CEO Perry Odak will oversee the merger process and remain in his position following the merger.
"While I would have preferred for Ben and Jerry's to remain independent, I'm excited about this next chapter in the life of the business," Cohen said in his e-mail to company employees Wednesday morning.
Green said Unilever will continue to "respect" Ben & Jerry's strict environmental and social protocols, including using specific milk sources drawn from farms near the company's South Burlington, Vt., headquarters and certain factory environmental controls.
"We have given clear understanding that we respect those principles," he said.
However, Green said Unilever expects to leverage its international distribution capabilities onto Ben & Jerry's brand, which is only beginning to pierce a handful of European and Asian markets. That will be accomplished in part by using Unilever plants overseas to produce the Ben & Jerry's product.
Unilever's ability to produce the product domestically is more limited because it has committed to honor current supply agreements Ben & Jerry's maintains with a cooperative of suppliers in the Vermont region. Unilever has also promised not to initiate any significant employee reductions or corporate restructurings for at least two years.
Overall, Goldstein said the acquisition would be accretive to revenue growth next year and accretive to earnings in 2002. Analysts said delay in earnings accretion is due in part to existing Ben & Jerry's distribution contracts, which have drawn the ire of some analysts for not providing the company with the comprehensive coverage needed to grow the brand.
The London-based company emerged as the favorite to acquire Ben & Jerry's earlier this week after a Cohen-led group withdrew a bid to take the company private for $38 per share. Others reportedly interested in the company included Dreyer's Grand Ice Cream (DRYR: Research, Estimates), Nestle, Britain's Diageo PLC and Italy's Roncadin.
Ben and Jerry's closed the day up 8-1/8 to 43-1/16, while Unilever shares rose 15/16 to 51-1/8.