Post Holdings on Sept. 19 announced plans to acquire Bob Evans Farms for $77 per share in a transaction valued at approximately $1.5 billion. The deal is expected to close early next year.
|Robert Vitale, president and CEO of Post Holdings|
“Bob Evans’ portfolio is aligned with key themes in food, both heat and eat and convenience,” Vitale said during a Sept. 19 conference call with securities analysts. “It increases our exposure to the attractive high-growth perimeter of the store, which is on trend with secular consumer trends. We anticipate Bob Evans will form the foundation of our refrigerated retail platform, and we see further growth opportunities and expansion across the perimeter of the store.”
Much of Post’s portfolio is focused on the slower-growth center-store categories, with more than a third of sales in ready-to-eat cereal. Another piece of Post’s business is private label peanut butter and granola, and protein bars, powders and shakes.
That leaves the Michael Foods Group unit, which includes value-added egg, potato and cheese products under the Crystal Farms, Better’n Eggs, Simply Potatoes and All Whites brands. Post acquired Michael Foods Group in 2014 for $2.45 billion, which at the time marked its largest transaction to date. But the business has remained challenged by the aftereffects of an avian influenza outbreak that devastated the egg market in 2015. The addition of Bob Evans’ portfolio, which includes refrigerated potato, pasta and vegetable side dishes and pork sausage, is expected to strengthen that business.
“We believe this organizational structure will facilitate growth and synergy realization and allow each business to focus on their respective strength and capabilities,” Vitale said.
Bob Evans Farms, which earlier this year sold its restaurant business to a private equity firm, has a growing food service business that represents approximately 35 percent of volume. Post sees opportunities to expand Bob Evans’ food service business, Vitale said.
He added, “…when we bought Michael, what we saw was a tremendously valuable food service franchise and an interesting and growing retail business. With this transaction, what we do is take that interesting retail business and really turn it into a competitively advantaged refrigerated retail platform. And that option was created by the Michael acquisition and realized with the Bob acquisition.”
In addition to top-line growth opportunities, the deal brings cost synergies of approximately $25 million, which is expected to be realized by the third full fiscal year following the closing of the acquisition, Vitale said.
“First, synergies will result from elimination of duplicate public company costs,” he said. “We believe there are meaningful cost synergy opportunities through leveraging each other’s manufacturing and supply chains where we overlap, as well as combining our procurement purchases. Additional opportunities include eliminating redundant costs across support function capabilities.”
The Bob Evans acquisition is Post’s second major deal this year. In April, the company entered into an agreement to acquire the Weetabix Food Co., the United Kingdom-based manufacturer of cereals, mueslis, oat granolas, breakfast drinks and nutrition bars sold under such brands as Weetabix, Oatibix, Alpen and Barbara’s, for £1.4 billion ($1.77 billion).
Vitale said while Post isn’t actively seeking additional transactions in the near term, “I never want to say that we're out of the market.”
“But our priority right now is to digest these two material acquisitions and consider what our next move is, not actively beating the bushes for new ones,” he said.