A Bid for Tradition : The battle for kosher food maker Manischewitz is about growth, a brand name and a little more.

Tradition and modernity exist side by side at B. Manischewitz Co., a kosher food company known for its matzo. But by necessity the emphasis is on tradition.

Each workday, rabbis assigned to Manischewitz pass a small shul, or synagogue, on their way into the Jersey City, N.J., matzo plant. There they oversee production to ensure strict adherence to kashruth , the 4,000-year-old laws that govern kosher eating and food preparation.

When special Passover matzo (a flat, unleavened bread) is prepared, Jewish employees carefully remove a small piece of dough from each batch, to be burned as a symbol of offerings made at temples in ancient times. In winter, to ensure that Jewish workers can be home by sundown before the Sabbath and holidays, the plant occasionally closes as early as 2 p.m.

“We’re both a business and an institution,” said Robert M. Starr, president and chief operating officer, who has worked 38 years for the 101-year-old company. “We represent something special.”

He wins agreement from the Beverly Hills-based investors who hope soon to be the company’s new owners.

“It is an excellent brand name,” said Arthur E. Levine, chairman of Levine, Tessler, Leichtman & Co., a 2-year-old private investment firm that is one of two bidders for Manischewitz.

Until late last week, Levine, Tessler, Leichtman, which has offered to pay $40.1 million, or $755.50 a share, appeared to be the sole survivor of about 45 bidders that surfaced since Manischewitz first solicited offers last fall.

On Friday, however, National Foods, distributor of Hebrew National kosher products, re-entered the bidding through an affiliate that submitted an offer of $43.3 million, or $816 a share. And on Monday, Manischewitz said it expects to have further negotiations after National Foods indicated that it would consider raising its bid to $820 a share. Previously, a National Foods bidding effort fell apart because the company could not nail down the financing.

Potential for Growth

The battle for Manischewitz reflects the company’s growth potential.

Of the 2,500 companies that make products certified as kosher, many are marketing giants such as Procter & Gamble, General Foods, Sara Lee, Campbell Soup, Gerber Products, Pepperidge Farm, Entenmann’s, Quaker Oats, H. J. Heinz and Del Monte. But of the companies specializing in such foods as matzo and gefilte fish, nearly all are small, family-run operations that distribute a few products regionally. With some companies, distribution is limited to a particular neighborhood.

Manischewitz, on the other hand, has won strong acceptance by developing a nationwide distribution network and is one of the few nationally known giants in the fractured business.

The company was founded in 1888 in Cincinnati, then a center of Jewish culture, by Rabbi Dov Behr Manischewitz. Originally a matzo maker, it now markets a full line of kosher foods for Passover and daily use, although matzo still accounts for half the company’s annual sales of about $30 million. In 1932, the company moved its headquarters to Jersey City. It now employs 250 people, 27% of whom have been with Manischewitz for more than 20 years.

At a plant in Vineland, N.J., the company also makes gefilte fish, borscht and chicken and vegetable soups. In addition, since 1933, the Manischewitz name has been licensed for use on wine, now produced by Canandaigua Wine Co. in Upstate New York and Weinstock Cellars in Healdsburg, Calif.

Solid Profit

The thinly traded stock is listed on the Cincinnati Stock Exchange. According to a recent proxy, 221 holders of record own 53,060 shares. Of those, 27.3% are controlled by board members, who include Bernard and William B. Manischewitz, first cousins and grandsons of the founder; David Manischewitz, a great-grandson of the founder, and Helen T. Manischewitz, the widowed sister-in-law of Bernard.

Despite the board representation, the family has had nothing to do with day-to-day operations in recent years.

Although critics contend that Manischewitz has been undermanaged, it has shown solid profit growth over the past several years, owns a great deal of land and has very little debt. For the year ended July 31, 1988, Manischewitz reported net income of $2.9 million on sales of $30.1 million, up from $2.3 million on sales of $29.5 million.

Even so, some observers say the company has failed to take advantage of opportunities to grow.

Irving Silverman, a consultant with Nancy Neale Enterprises in Roslyn, N.Y., who stages kosher food expos, faults Manischewitz and other kosher food firms for failing to aggressively pursue acquisitions or licensing agreements.

Another key to the industry’s growth, observers noted, will be the development of kosher products that appeal to a broader customer base.

“There is a resurgence of interest (in kosher foods),” said David A. Weiss, president of Packaged Facts Inc., a New York-based marketing research company. “People are coming back to religion. And all kinds of people are eating kosher food.”

Because of the industry’s scattered and quiet nature, reliable statistics are difficult to obtain. But a study last year by Packaged Facts put the 1988 retail market for kosher food products at $1 billion to $1.25 billion.

Financing by Drexel

For the past two years, Manischewitz and other kosher food companies have come under scrutiny by a federal grand jury in New Jersey looking into possible antitrust violations. Few details of the investigation have come out, and Levine maintained in a recent interview that he does not expect the investigation to have a material effect on Manischewitz.

If Levine’s firm succeeds in buying Manischewitz, the company’s management would stay on with a 15% stake. The deal would be financed primarily by bank and other debt to be arranged by Drexel Burnham Lambert.

National Foods’ bid, on the other hand, does not include an equity stake for management.

A Manischewitz purchase would bring a new line of business to the fledgling Levine, Tessler, Leichtman firm, which operates out of spacious offices decked with contemporary art.

Founded in July, 1987, with $100 million in equity capital, the company got off to a slow start as it waited for the buyout business to recover after the October, 1987, stock market crash.

Early last year, it attempted to buy Chi-Chi’s, a Louisville-based Mexican restaurant chain, for $325 million but lost out to Gibbons, Green, van Amerongen, another investment firm. Later, it began amassing a network of regional Midwest companies that resell personal computers to Fortune 1000 companies. It also holds stock in Gruene, a small company in Venice that makes men’s cosmetics, fragrances and toiletries.

Levine, a lawyer and accountant, became a multimillionaire in 1986 when he sold his stake in Westwood One, a producer and distributor of nationally sponsored radio programs of which he was president. In 1987, he scored again by selling his stake in IDB Communications, a leading satellite transmission and distribution company.

Partner Lenard B. Tessler, a CPA with a master’s degree in business administration, considers himself the firm’s resident “Doctor Doom,” responsible for making sure that the company does not load its deals too heavily with debt. He and four partners got burned in 1986 when declining oil prices caused the demise of Walker Energy Partners, their master limited partnership in oil and gas. Since then, he has successfully helped two such struggling companies reorganize.

Motivated by Opportunity

Levine, 37, and Tessler, 36, met through their wives in 1986. Levine’s wife, Lauren B. Leichtman, 39, is the firm’s third principal. A securities lawyer who is a Los Angeles native, she has worked seven years in private practice and three years in New York with the enforcement division of the Securities and Exchange Commission.

Tessler noted that their firm shies away from heavily leveraged buyouts that would force the sale of assets. The partners “have a definite strategy of building businesses,” he said.

Although all three partners are Jewish and grew up using Manischewitz products, they say their interest in Manischewitz has far more to do with business opportunities than sentimentality.

But Tessler does admit to some emotional attachment. His father owned a liquor store in New York that sold Manischewitz wine. And his grandfather was an Orthodox Jew who immigrated to New York from Romania. When Tessler entered the Manischewitz plant one day, he recalls thinking: “This would really make my grandfather proud.”

Times researcher Melanie Pickett contributed to this story.

THE KOSHER MARKET

Annual sales total $1.5 billion and are expected to reach $2 billion by 1994.

About 3,000 different companies produce 17,500 kosher-certified products.

Sales have grown 15% to 20% each year for the past five years.

An estimated 30% of all packaged food products in supermarkets are kosher certified, worth about $30 billion.

Ten percent of all new foods and related products introduced each year are kosher certified.

Sources: Union of Orthodox Jewish Congregations of America and Irving Silverman, a New York kosher food consultant