TreeHouse Foods THS
announced today that it has signed a definitive agreement to acquire ConAgra
Foods' private brands operations. Annual sales of the combined entity will
be nearly $7 billion. The transaction is valued at $2.7 billion, and closing
is anticipated in the first quarter of 2016.
The acquisition of ConAgra's private brands operations will meaningfully
expand TreeHouse's presence in private label dry and refrigerated grocery.
The private brands operations had sales of approximately $3.6 billion for
the twelve months ended May 31, 2015. Following the acquisition, TreeHouse
will have pro forma sales of nearly $7 billion and adjusted EBITDA of
approximately $690 million. Upon closing, TreeHouse will have more than 50
manufacturing facilities and over 16,000 employees.
"Since our founding ten years ago, our strategy has been to drive
shareholder value by consolidating supply of private label brands. We offer
our customers value without compromise through economies of scale, quality
products and superior customer service," said Sam K. Reed, Chairman and
Chief Executive Officer of TreeHouse Foods.
"The union of TreeHouse and ConAgra's private brands business establishes an
industry leader in customer brands and custom products with significant
scale, scope and skill and enables us to extend our reach in the grocery
store by over 10 shelf stable and refrigerated food categories.
Importantly, the combination will also strengthen our ability to support our
customers' efforts to build their corporate brands and offer consumers the
best combination of choice and value," Mr. Reed continued.
The Boards of Directors of both companies have approved the transaction,
which is subject to the expiration or termination of applicable waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the
Competition Act (Canada) and other customary closing conditions.
FINANCIAL TERMS
The purchase price of $2.7 billion is expected to be funded by a combination
of $1.8 billion in new debt issuance and approximately $1.0 billion in
equity stock issuance. TreeHouse has entered into a committed financing
arrangement with its lenders, comprised of a combination of Secured Term
Loan A, Secured Term Loan B and Unsecured Bridge facilities. In conjunction
with the committed financing, the Company will amend its existing $1.4
billion credit facility to allow for the acquisition and the associated debt
incurrence. No additional changes in borrowing costs or other terms are
anticipated.
Both the financing and the acquisition are expected to close in the first
quarter of 2016. TreeHouse Foods expects to incur approximately $100
million in costs associated with transaction fees and issuance costs.
TreeHouse expects the transaction to be dilutive by $0.20-$0.35 in adjusted
earnings per share in year one, to contribute $0.55-$0.70 in year two and to
be accretive by $1.50-$1.65 in year three. Investments to deconsolidate and
integrate the private brands business, combined with the financing costs for
the transaction, will exceed contributions from the private brands business
in year one. In years two and three, synergies will ramp up significantly,
while costs to integrate the business will wind down. Synergies will
largely be driven by procurement and supply chain optimization.
Morgan Stanley & Co. LLC and BofA Merrill Lynch are acting as financial
advisors to TreeHouse Foods on the transaction and Winston & Strawn LLP is
serving as legal counsel to the Company.
THIRD QUARTER PREVIEW
TreeHouse today also previewed its third quarter results and pre-announced
sales of $799 million, which compares to sales of $796 million in the third
quarter of 2014. The Company expects to report earnings per fully diluted
share of $0.64-$0.65 compared to $0.47 per fully diluted share reported for
the third quarter of last year.
On an adjusted basis, earnings per share in the third quarter are expected
to total $0.85-$0.86 compared to $0.89 in the prior year. Positive tax
adjustments are expected to contribute approximately $0.05 of earnings in
the quarter.
Additionally, the Company reaffirmed its guidance for the full year 2015 of
$3.00-$3.15 in adjusted earnings per share. Further detail on the third
quarter results will be provided as scheduled on Thursday, November 5, 2015.
CONFERENCE CALL WEBCAST
A webcast to discuss the Company's acquisition of ConAgra's private brands
business will be held at 9:00 a.m. EST today and may be accessed by visiting
the "Investor Overview" page through the "Investor Relations" menu of the
Company's website at http://www.treehousefoods.com.
COMPARISON OF ADJUSTED INFORMATION TO GAAP INFORMATION
The adjusted earnings per share data contained in this press release
reflects adjustments to reported earnings per share data to eliminate the
net expense or net gain related to items identified by management that
affect the assessment of earnings results between periods. This information
is provided in order to allow investors to make meaningful comparisons of
the Company's operating performance between periods and to view the
Company's business from the same perspective as Company management. Because
the Company cannot predict the timing and amount of charges associated with
items such as acquisition, integration and related costs, or facility
closings and reorganizations, management does not consider these costs when
evaluating the Company's performance, when making decisions regarding the
allocation of resources, in determining incentive compensation for
management, or in determining earnings estimates. Adjusted EBITDA
represents adjusted net income before interest expense, income tax expense,
depreciation and amortization expense, and non-cash stock based compensation
expense. Adjusted EBITDA is a performance measure used by management, and
the Company believes it is commonly reported and widely used by investors
and other interested parties, as a measure of a company's operating
performance. This non-GAAP financial information is provided as additional
information for investors and is not in accordance with or an alternative to
GAAP. These non-GAAP measures may be different from similar measures used by
other companies. Given the inherent uncertainty regarding adjusted items
in any future period, a reconciliation of forward-looking financial measures
to the most directly comparable GAAP measure is not feasible.
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