PITTSBURGH, June 13 (UPI) -- H.J. Heinz Co. said it has signed a definitive agreement to sell a number of its U.S. businesses, including the well-known StarKist seafood brand and its 9-Lives cat food, to Del Monte Foods Co.
Under the agreement Heinz's U.S. StarKist seafood, North American pet food and pet snacks, U.S. private label soup, College Inn broth, and U.S. baby food businesses will merge with Del Monte in an all-stock transaction.
The companies said the businesses generate about $1.8 billion, or 20 percent, of Heinz' annual sales and the boards of both companies approved the plan.
Heinz said it will roll the operations into a new subsidiary that will be spun off to Heinz shareholders and immediately merged into a unit of Del Monte.
Del Monte said the deal will boost its annual sales to about $3.1 billion, which is well ahead of the $1.51 billion the San Francisco-based company reported for the fiscal year ended June 30.
Under terms of the deal, Heinz shareholders will receive approximately 0.45 shares of the new Del Monte company common stock for every one share of Heinz common stock they own.
At the close of the transaction, Heinz shareholders will own approximately 74.5 percent, and Del Monte shareholders will own approximately 25.5 percent of the newly merged company.
The transaction is expected to be tax-free to the shareholders of both companies.
As a result of the merger, Del Monte is expected to assume approximately $1.1 billion in debt associated with the spun-off businesses. The transaction is expected to be accretive to Del Monte shareholders. The new company will retain the Del Monte name.
Included in the transaction will be the following brands: StarKist, 9-Lives, Kibbles ' n Bits, Pup-Peroni, Snausages, Naw somes!, Nature's Goodness Baby Food and College Inn broths.
Richard G. Wolford, chairman and chief executive officer of Del Monte, said, "These brands are a great strategic fit with Del Monte. With this transaction, Del Monte is strategically positioned with higher-margin, powerful brands and increased scale focused in the center store.
"The similarities of our businesses will drive significant synergies which we will use to invest in and reinvigorate these brands and at the same time target bottom line growth. These new brands will be core to our business and will be fully supported by increased marketing spend and Del Monte's brand-building and supply-chain expertise. Through the reinvigoration of these brands and the realization of synergies, we will be a financially stronger company, well-positioned to deliver shareholder value," Wolford said.
William R. Johnson, chairman, president and chief executive officer of H.J. Heinz, said, "We were committed to ensuring that these businesses, which have been an important part of the Heinz family for many years, became part of an organization that shares similar values and heritage.
"We believe that under Del Monte's proven leadership and years of consumer product experience, these brands, and the talented Heinz people joining the newly merged company, will grow with the new Del Monte," Johnson said.
Following the transaction, approximately 5,000 HeInz employees will transfer to Del Monte.
There is expected to be minimal impact on the size of either the Heinz or Del Monte workforces.
The deal is subject to regulatory approvals, customary closing conditions, and the receipt of a ruling from the Internal Revenue Service that the transaction is tax-free.
The transaction also requires the approval of Del Monte shareholders. Texas Pacific Group, which owns approximately 47 percent of Del Monte's outstanding common stock, has committed to vote its shares in favor of the transaction.
The transaction is expected to close at the end of the calendar year 2002 or early 2003.
Heinz also said its fourth quarter earnings including special items rose 18.2 percent to $223.5 million, or 63 cents a share, from $170.5 million, or 49 cents a share during the same period last year on the strength of acquisitions.
The world's biggest ketchup maker said its sales rose 4.8 percent to $2.57 billion from $2.46 billion a year ago.
Analysts on Wall Street Had expected Heinz to post a net income of 62 cents a share, according to Thomson Financial/First Call.
