Leveraged buyout specialist Kohlberg Kravis Roberts & Co. said Thursday that it will sell its giant food unit Beatrice Co. to ConAgra for $1.34 billion in a cash and stock deal that will make ConAgra the second-largest U.S. food-processing company.
Under terms of the transaction, which must be reviewed by the federal government, ConAgra will pay $11.50 per Beatrice share, plus put up $626 million in cash.
Omaha-based ConAgra has long boasted that it is the only major U.S. company operating across the entire food chain, but it is not well known for its brand-name products. Buying Beatrice, analysts said, will solve that problem and give ConAgra greater access to supermarket shelves.
“They (ConAgra) do own Banquet, but they weren’t well identified in the supermarket,” said John M. McMillin, a food analyst with Prudential Bache in New York. “This gets them a portfolio of premium brands and a better distribution system. This puts ConAgra close to Philip Morris and closer to being the biggest food company in America.”
Beatrice and ConAgra together have nearly $20 billion in annual sales, McMillin said, placing them in the No. 2 spot behind Philip Morris, which has sales of about $22 billion.
Fullerton-based Hunt-Wesson, which employs 2,500 in Orange County and 9,000 throughout the United States, is the largest Beatrice food division.
Chicago-based Beatrice’s principal brands include Hunt’s ketchup and other tomato products, Wesson cooking and salad oils, Orville Redenbacher’s popcorn, Peter Pan peanut butter, Swift Premium, Eckrich and Butterball processed meat and turkey products and La Choy Oriental foods.
ConAgra is best known for its Banquet and Healthy Choice frozen foods, plus its Armour Classics, Chun King and Morton brands.
“This is clearly a major strategic opportunity for ConAgra,” Charles M. Harper, ConAgra chairman and chief executive, said in a written statement. “One of ConAgra’s most important long-term objectives has been to establish a strong sales and distribution system. . . . Beatrice will fulfill that objective.”
It will also fulfill ConAgra’s acquisitive itch, which was thwarted in 1989 when it lost out to Tyson Foods Inc. in bidding for poultry processor Holly Farms Corp.
“ConAgra seems to have an insatiable appetite for acquisitions,” McMillin said. “This should fill their need for a while.”
The need is well documented, particularly in the area of meat processing. Since starting from scratch in the early 1980s, ConAgra has grown to the point that it operates 17 meat processing plants nationwide under half a dozen corporate banners.
It has recently come under fire as one of the Big Three meat-packers that are buying up competitors and increasing consolidation in the industry.
Food processing overall is also highly concentrated--a small number of companies own large chunks of industry segments--and ConAgra’s purchase of Beatrice makes it even more so, said John M. Connor, an agricultural economist at Purdue University.
“Back in the 1950s, the top 50 food processors owned a little over one-third of all assets of all food processors,” Connor said. “By 1987, the latest time available, that figure rose to 75%. That’s an extraordinary increase.”
The ConAgra deal completes Kohlberg Kravis Roberts’ breakup and sale of Beatrice. It bought the company in 1986 for $6.2 billion in what was then the biggest leveraged buyout ever.
At the time, Beatrice was part of a huge foods and consumer products conglomerate. Since then, most of Beatrice’s businesses have been sold to pay down debt. Gone are Avis, Playtex and a set of Coca Cola bottling companies.
“Four years ago, together with the new management of Beatrice, we began the process of reshaping Beatrice from a diverse conglomerate into a focused and more profitable food company,” Henry R. Kravis, a founding partner of New York-based KKR, said in a written statement. “Today’s announcement marks the successful completion of this process.”
Beatrice officials could not be reached for comment, and ConAgra declined to discuss the deal. The companies’ prepared statement on the acquisition did not say whether any of ConAgra’s 55,000 employees and Beatrice’s 15,900 would lose their jobs in a merger.
Standard & Poor’s Corp. and Moody’s Investors Service Inc. said Thursday that they are placing ConAgra’s debt ratings under review for possible downgrading.
Times staff writer John O’Dell contributed to this story from Orange County.