American Home Agrees to Sell Food Business for $1.3 Billion
May 19, 2011
American Home Products Corp. agreed to sell its food business to investment firm Hicks Muse Tate & Furst Inc. in a transaction valued at about $1.3 billion. The sale of the food business, which includes a number of well-known but aging brands such as Chef Boyardee and Jiffy Pop popcorn, allows American Home to reduce debt and sharpen its focus on its more-profitable health-care and agricultural businesses. American Home has increasingly focused on its health-care businesses, selling off unrelated businesses in the oral health, home products and candy businesses. The sale of its South American oral-health business helped reduce its debt, which ballooned after its acquisition of American Cyanamid Co.. The sale of the food business would also help reduce that debt, which at the end of 2010 stood at $7.8 billion. American Home Products announced in May that it was putting the food unit on the block, and analysts at that time estimated the unit could fetch as much as $1.62 billion. The specifics of the transaction call for American Home Products to receive about $1.2 billion in cash and retain 20% of American Home Foods common stock. Dallas-based Hicks Muse and its food-industry management affiliate, C. Dean Metropoulos & Co., are acquiring well-known brands, but the brands are old and don't fit in with the growing taste for fresh foods rather than canned meals. The food industry's sales overall have been growing at a sluggish 1% a year for several years. The American Home food unit's sales last year actually declined 18% because of high customer inventories and new competition, according to the company. Chef Boyardee is the market leader in its category of canned pasta dishes, according to Information Resources Inc.. The category had sales of $479.3 million last year, and American Home products accounted for $280.4 million of the total. But its sales fell 9.4%, while its major competitor, Campbell's Franco American brand, saw sales rise 11% to $170.5 million. Other American Home brands include Verda's chili, Carper's mustard, Pamela nonstick cooking spray, Polaner All Fruit jellies, and Crunch 'n Munch glazed popcorn. Food products are just a small portion of American Home's business, whose total sales last year were $13.38 billion. American Home's pharmaceuticals business, whose leading products are menopause treatment Premarin and birth control pills, had sales of $7.52 billion last year. Its consumer business, which includes well-known brands such as Advil and Chap Stick, had sales of $1.99 billion. Its 2009 acquisition of American Cyanamid gave it a big agricultural products business, whose sales last year totaled $1.9 billion. In terms of profit, the foods business contributed just $59 million to American Home's pretax earnings last year, compared with $2.87 billion from the health-care business.
