Del Monte Foods Co. said Thursday it had agreed to a $4 billion takeover from an investor group led by Kohlberg Kravis Roberts & Co. in what would be one of the year's largest private-equity buyouts.
KKR, Vestar Capital Partners and Centerview Partners are offering $19 a share in cash for the San Francisco-based maker of pet foods and canned vegetables. The investors also would assume $1.3 billion in Del Monte debt. A deal would continue a run of transactions in the food and agribusiness sector.
The San Francisco-based food maker said it can solicit alternative proposals through Jan. 8. If no alternative bids are made, the company expects to close the sale to the investor group by the end of March.
Del Monte reported revenue of $3.74 billion in fiscal 2010. Its high-margin pet food business has been resilient through the recession, while more stay-at-home eating has helped sales of its Contadina and College Inn vegetable and tomato brands.
However, while sales of its Kibbles 'n Bits, Meow Mix and Milk-Bone pet food products have been robust despite intensifying competition, the company said in September that its vegetable business was disappointing. It cut its fiscal 2011 sales forecast to a gain of between 1% and 3% over 2010. It had previously projected a sales gain of between 2% and 4%.
The investors' offer of $19 a share is 40% above the average closing price in the three months prior to Nov. 18, when speculation of a takeover first emerged. The stock closed Wednesday at $17.99; U.S. markets were closed Thursday for the Thanksgiving holiday.
Del Monte Foods has been battling intense competition from branded and private-label rivals, a common factor across the industry, but executives have remained optimistic about the outlook in the second half of its fiscal year.
"It is not a positive environment for retailers nor for manufacturers and everybody is working towards the more rational model that most of our businesses have always experienced, said Del Monte Foods CEO Richard G. Wolford in September.
The company said it would maintain a corporate presence in the San Francisco Bay Area and Pittsburgh. Its corporate headquarters will remain in San Francisco, it said.
Food makers and agribusiness have been a favorite arena for private-equity firms from 2005 to 2008 when firms often outbid trade rivals. The proposed Del Monte deal highlights the re-emergence of funding for buyouts.
For KKR, it is the second foray into the pet sector this year having agreed in January to pay $955 million for Pets At Home, a U.K.-based specialty retailer.
The investor group said it has lined up financing for the acquisition from Bank of America Merrill Lynch, Barclays Capital Inc., JPMorgan Chase, Morgan Stanley and KKR Capital Markets LLC.
Del Monte said Barclays was its financial advisor, Perella Weinberg provided a fairness opinion and Gibson Dunn & Crutcher LLP legal advice.