Continuing efforts to sell its non-grocery products operations, Ralston Purina said Tuesday that its Foodmaker subsidiary, which operates the Jack in the Box fast-food chain, will be bought by a group headed by senior Foodmaker management and a New York investment firm that specializes in leveraged buy-outs.
Terms of the agreement in principle with senior Foodmaker management and Forstmann Little, which will manage the buy-out, were not disclosed. But one industry analyst estimated that the deal could be worth as much as $500 million.
In the past three years, Ralston Purina has sold off several of its operations and placed greater emphasis on its highly profitable grocery products division.
The company has sold seven soybean crushing plants, half a dozen mushroom plants, the St. Louis Blues hockey team and half of its interest in a Colorado ski resort. Last year, it sold its Continental Restaurant Systems to Vicorp Restaurants and bought ITT’s Continental Baking, which produces Wonder Bread and Hostess products.
‘Good Deal’ for Company
In March, Ralston Purina acknowledged that it was “examining several options” for its profitable Foodmaker division, including selling all or part of the operation or keeping and expanding it.
The Foodmaker divestiture is a “good deal” for Ralston, according to George Novello, a food industry analyst for E. F. Hutton & Co. in New York. “It accomplishes some of their goals and gives them some cash to make either an additional acquisition, reduce debt or buy back stock.”
William P. Stiritz, Ralston Purina’s chairman and chief executive, said Tuesday that the divestiture “in no way reflects unfavorably on Foodmaker but is . . . in line with our company’s long-range strategic direction.”
Ralston Purina’s grocery products division is the company’s most lucrative. For the year ended Sept. 30, 1984, the division generated 63% of the company’s $242.7 million in earnings on only 38% of its nearly $5 billion in sales.
By comparison, Foodmaker represented 12% of both earnings and sales, while Ralston Purina’s highly cyclical agricultural division generated only 18% of company profits on 45% of its sales.
Foodmaker has reorganized this year, centralizing its four operations “zones” into the company’s San Diego headquarters and laying off an undisclosed number of regional management staff.
In addition, Foodmaker is considering changing the name of its Jack in the Box outlets to Monterey Jack’s and is testing the name at 39 outlets.
The company operates about 800 Jack in the Box restaurants.