Hormel Foods (HRL) announced on Thursday that it will be acquiring the Skippy peanut butter business from Unilever (UL) for about $700 million (here is the press release).
I think this is a good acquisition by Hormel. It helps the company diversify its offerings in the packaged/processed food space with a non-meat protein product. Skippy is a well-known brand that holds the No. 2 share of the peanut butter market in the U.S. and it is the leading brand in China; this latter point may help Hormel expand its other products in the region. Hormel is in a good position to make an acquisition of this size (the company has $760 million in cash on its balance sheet) and they expect the deal to be modestly accretive to earnings in fiscal 2013 and fully accretive in fiscal 2014.
The market evidently liked the deal, moving HRL up 3.7% to a new 52-week high. (January 4 update: The stock moved up another 3.3% today.) The stock is currently the 6th largest position in my portfolio.
Yes I saw this under news for UL. I wonder why Unilever wants to sell this brand? It looks like they are moving away from foods, similar to PG. I would chalk this up as a Hormel win. It's better to own Skippy than have a bunch of cash collecting dust! As a bonus it adds diversity.
ReplyDeleteIt's one more thing at the grocery store you can buy that will support your retirement plan too!
Compounding Income: Thanks for your comment. Unilever seems to be divesting some of its food-related businesses to focus more on personal hygiene and household products. I agree that it looks like a win for Hormel and I will definitely take a look at Skippy the next time I need to buy peanut butter. :)
DeleteDGM,
ReplyDeleteI'm disappointed by this. I've been interested in UL as of late, and I think this is a bad move. I agree with you, however, and it does look like UL is following in the footsteps of PG and getting away from food a bit. I don't know how else you could explain this move on giving up an established and successful brand.
It does make HRL more attractive, however. So I'll have to take a look at that.
Best wishes!
Dividend Mantra: I agree that this move seems better for Hormel than it does for Unilever. However, if this helps Unilever focus on its areas of strength, then perhaps it will be a good move for them in the long run.
DeleteHRL is a well managed company. They have little or no debt. Buying Skippy was a great idea and will benefit them into the future. There is a interview with the CEO available online he did with Jim Cramer. Seems HRL may try to use the Skippy name in other ventures/products especially in international sales. This company thinks long-term, this is about more than selling peanut butter. This company is impressive, I will add more when it becomes possible due to valuation and available funds.
ReplyDeleteAnonymous: Thanks for your comment. I also happened to watch the interview with Hormel's CEO on Mad Money. One of the things I liked was the mention of Hormel's presence in the lunch category: They are already strong in lunch meats and now they can add the diversity of peanut butter-based lunch products. I also like the role that this acquisition can play in boosting international sales.
DeleteI would love to increase my position in HRL, but the recent pop in the price has made the valuation less attractive. However, I would consider a purchase on a pullback to $30.