Meow
Yes, there is a growing rush to oligopoly in cat food. The oligopoly was tightened by the announced acquisition of the brand Meow Mix by DelMonte Foods in a $705 million deal. DelMonte is already a major player in this market, with its 9 Lives and Kibbles 'n Bits brands. Meow Mix has a 16% market share in the US for dry cat food and is the #2 brand in its segment (after Nestlé's Friskies brand).
DelMonte Foods is the largest US supplier of canned fruits and vegetables. It owns such brands as Contadina (canned tomato products), S& W (canned vegetables), StarKist (tuna), and College Inn (coup), as well as the flagship DelMonte brand. The company also sells dog food, under such brands as Gravy Train, Cycle, Snausages, Reward, Skippy, and Nature's Recipe. The Meow Mix purchase will push up the firm's pert food sales over a billion dollars per year.
(DelMonte Food is a separate company from Fresh DelMonte Produce, a company that sells pineapples (it is #1 in the world), bananas, and other produce. It also sells pre-cut salads and fruit and some other food products. The two companies, once one, split in 1989, are no longer related, but, curiously, they do use the same logo.)
The sequence of ownership is typical equity firm buffering. The brand was originally owned by Swiss food giant Nestle. Nestle offloaded it to a private equity firm, J.W. Childs Associates LP, in 2002. The price then was $120 million. Childs sold it in turn to another equity firm, Cypress Group in 2003. By that time, the price was $425. As stated above, DelMonte is buying it at $705 million. That's over 500% appreciation in three years, and it's not because four times as many cats are eating the product.
A Wall Street Journal article ("Del Monte Nears $700 Million Deal For Meow Mix, 3/2/06) notes that most equity firm trades often involve little real increase in fundamental value. However it notes:
Private-equity proponents could point to Meow Mix as a case where private-equity holders made a difference, either by restructuring operations, changing marketing or cutting costs. Cypress, for instance, pushed Meow Mix into the "wet" cat-food category.
While doubtless the idea of expanding out of the bagged cat food business into the canned variety was a stroke of sheer marketing genius (irony intended), the real issue was probably that DelMonte was not ready to buy in 2002, and is paying dearly for waiting. The equity firms buffered the M&A market and profited handsomely. DelMonte, according to WSJ article, has 20% of its product sales in pet foods but 40% of its profits, hence the scramble to expand even at an inflated cost.
At the same time, the gin game goes on. DelMonte Foods announced it will sell its private-label lines of soup and infant-food products to TreeHouse Foods Inc. for about $275 million. That sell-off will help fund the Meow Mix deal.
TreeHouse is itself an interesting company. it was spun off in 2005 by dairy giant Dean Foods, in order to get rid of its non-dairy food products. These include several pickle brands (Farmans, Nalley's, Peter Piper, and Steinfeld) non-dairy creamers (Cremora, Mocha Mix), and an egg substitute (Second Nature), as well as a number of private-label foods.
