Del Monte Pacific has agreed to buy the US canned food business of Del Monte Foods - a separate entity - from funds affiliated with KKR, Vestar Capital and Centreview Partners for nearly $1.7 billion.
Singapore-listed Del Monte Pacific's move to take a bite at the US canned food business was welcomed by investors, with the stock rising nearly 10% on Friday.
The deal will open up new markets - in the US and South America - to Del Monte Pacific, which is led by the Campos family in the Philippines.
Del Monte Pacific currently only has the rights to distribute Del Monte food in the Philippines, India and Myanmar. The acquisition is also a re-unification for a brand that has had a storied history.
Del Monte was once owned by biscuit company RJR Nabisco, which was acquired by private equity firm KKR through a leveraged buyout in 1988, the largest at that time. After that record-busting buyout, the company was forced to sell assets, including pieces of the Del Monte business, to reduce debt.
The deal will be financed through a combination of about $745 million of equity - which will come from the parent Del Monte Pacific - and the remaining $930 million will be financed through debt, to be taken on by the acquisition subsidiary.
Citi, Morgan Stanley and two Philippine banks - BDO and BPI - have committed financing for the deal. According to one analyst, the deal was struck at an enterprise value to Ebitda ratio of 9.5 times, which was fair compared to the 13.5 times at which Japanese brewery Suntory acquired Lucozade and Ribena from GlaxoSmithKline last month. “It doesn't look expensive, given that there are quite a lot of revenue and cost saving synergies to be achieved,” said the analyst.
KKR, Vestar Capital and Centreview Partners had bought Del Monte Foods for $5.3 billion in March 2011 in a take-private deal. The funds are selling the canned food business to Del Monte Pacific, but will retain the pet food business.
Perella Weinberg and Citi advised Del Monte Pacific. Morgan Stanley advised Del Monte Foods. Del Monte Pacific is 67% owned by NutriAsia Pacific, one of the leading distributors of condiments, sauces and cooking oil in the Philippines.