2 Investment Banks Offer to Buy Out Anderson, Clayton
Two New York investment banking firms announced a $655-million bid for a Houston-based food products company Thursday that would reshape the $3-billion dog food business.
The firms said they want to buy Anderson, Clayton & Co., the makers of Gaines dog food, Chiffon margarine and Seven Seas salad dressing, and then sell Gaines to help finance the deal.
Bear, Stearns & Co. and Gruss & Co., the investment banking firms pursuing the complicated buyout, said they would sell Gaines to Quaker Oats for an undisclosed amount of cash. That would make Quaker Oats the nation’s No. 2 dog food company.
Gaines--which analysts say needs a stronger marketing effort--has recently hiked its advertising budget by 50% and introduced commercials that feature people in dog costumes to promote its first dry puppy food and a new line of dog snacks. The company also said it intends to promote Top Choice and Cycle products more heavily.
But the Gaines deal hinges on Anderson, Clayton, which hasn’t made any decision. President W. Fenton Guinee Jr. said the company’s board of directors would meet to consider the offer. He said a meeting would take place “promptly” but refused to say when.
The $54-a-share offer from Bear, Stearns and Gruss is significantly higher than the $45 a share that Anderson, Clayton management has offered shareholders under a recapitalization plan. The recapitalization plan is scheduled for a shareholder vote on June 2.
Anderson, Clayton, a food processor with sales of $1.8 billion in 1985, purchased Gaines from General Foods in June, 1984, for $188 million. William Maguire, a food industry analyst with Merrill Lynch in New York, said the Gaines business was worth between $240 million and $300 million, depending on how much debt Quaker Oats assumed with the purchase.
Anderson, Clayton’s shares were among the most active Thursday on the New York Stock Exchange as about 1.03 million shares changed hands. The stock closed at $56.25 a share, up $4.62 1/2, indicating that the market anticipates a bidding war for Anderson, Clayton.
Poor Marketing Efforts
Quaker Oats stock closed up $1.87 1/2 a share on the New York Stock Exchange at $76.50, a 52-week high. Bear, Stearns shares slipped 25 cents to $34.50.
Industry analysts said the leveraged buyout would be the largest ever attempted by Bear, Stearns, which went public last October to raise money to enable it to be a greater force on Wall Street.
Maguire said the Gaines brand has suffered from poor marketing efforts under Anderson, Clayton ownership.
“What Gaines needs is solid marketing. Quaker would better manage it,” Maguire said. The company’s Cycle dog food, which has had little advertising support, has lost sales over the last few year, especially in the dry dog food category.
Dog food sales have generally remained flat for several years, analysts said, although sales of dry dog food continue to outdistance sales of canned or moist dog food. A Gaines acquisition would strengthen Quaker Oats’ position in the $1.8-billion dry dog food market, which is dominated by Ralston Purina, the nation’s No. 1 dog food company. Gaines sells the No. 3 dry dog food brand, Gravy Train, which had sales of $135 million in 1984, according to Advertising Age.
Abandon Recapitalization
Gaines and Quaker Oats dominate the $213-million moist dog food category, which is lead by Gaines Burgers, Gaines’ Top Choice brand and Quaker Oats’ Ken-L-Ration.
Bear, Stearns and Gruss, which made the offer after meeting with Anderson, Clayton executives in Houston on Wednesday, said their offer was contingent on Anderson, Clayton’s abandonment of its recapitalization plan.
The banking firms said in a joint statement that they were “highly confident” they would receive the financing that they need to buy Anderson, Clayton. The investment banking firms said that the proceeds from the Gaines sale would supply a “substantial” amount of the funding and that a “major New York commercial bank” would supply additional funds.
