Food assets change hands
Two recent deals in the food industry illustrate the discarding and picking up game that goes on between big, established companies, who see an opportunity to drop flagging products or, contrarily, to revive products with a fresh approach.
ConAgra sells products to Smithfield Foods
US agricultural products giant ConAgra announced it would sell most of its branded, refrigerated meat products to the #1 the US's largest pork company, Smithfield Farms. The $575 million deal represents a deal between two of largest food companies in the world.
Among the brands being sold are Armour (fresh and packaged meats), Butterball (turkeys), Eckrich (sausage and cold cuts), Margherita (prepared meals, Longmont (meats) and LunchMakers (prepared meals), all brands sold to food service operations and retail.
The Butterball turkey assets, however, will be transferred by Smithfield into Carolina Turkeys, a joint venture between it and Maxwell Farms, which already sells turkey. The combination of the two operations will make Smithfield the #1 seller of turkey in the US, moving ahead of Hormel with its Jenny-O brand.
For Smithfield it was seen as a move that is both a horizontal one (it already sells such meat brands as John Morrell, Gwaltney, Rath, and Patrick Cudahy) and a vertical one (it already processes pork and beef products that can be used for such products.
Smithfield recently purchased the European meats division of Sara Lee for a similar sum. Analysts noted that Smithfield will face the same pressures that ConAgra and Sara Lee have encountered, namely increased completion in packaged meats from companies like Hormel, Tyson, and Purdue.
For ConAgra, it is an attempt to get back to its most profitable fundamentals in processing and selling products made from soy, corn, oilseeds, and other crops along with some consumer items. A Wall Street Journal article "ConAgra to Sell Meats Business", 7/31/06), quotes a company source as saying:
"ConAgra's main focus is consumer packaged goods….These businesses do not have the margins that approach some of our other businesses and they're not a strategic fit."
Furthermore, the article sates that the company stated that
the deal allows the Omaha, Neb., company to simplify its operations and focus on other areas of its portfolio, strengthening successful brands like Healthy Choice and Banquet frozen meals.
Con Agra is also holding onto brands like Hebrew National, Brown N Serve, Slim Jim and Pemmican.
Rice king
Spanish food giant Ebro Puleva announced it would buy Kraft's Minute Rice brand for $280 million. The sale is part of Kraft's effort to get rid of non-core brands, especially since it is rumored that owner Altria will spin off the company in an IPO sometime soon.
For Ebro Puleva, already the #1 seller of packaged rice in the world and in the US, the Minute Rice brand will be another jewel in its crown. The company bought US rice seller Riviana Foods in 2004, and Minute Rice will be sold by of Riviana alongside such brands as Carolina, Mahatma, and Success.
Ebro is also big in the US pasta industry, selling the brands Healthy Harvest, Ronzoni, San Giorgio, Creamette, American Beauty, Skinner, Prince, Catelli, and Lancia through its New World Pasta Company subsidiary. It is the #1 food company in Spain, selling sugar, rice, pasta, and dairy products. It also has operations in Latin America.
