Campbell Soup Co. jumped into the fast-growing Mexican sauce business Monday, announcing that it is buying Pace Foods Ltd. for $1.1 billion in cash.
For Campbell’s, the deal means the acquisition of the world’s leading producer of Mexican sauces, which have surpassed ketchup as the nation’s most popular condiment.
“Pace is a brand jewel” that will provide Campbell with a “turbocharged new business category,” said David W. Johnson, Campbell chairman, president and chief executive.
For Pace, until now a family company, it’s a chance to go after global sales of its popular Pace Picante Sauce.
“We’re neophytes in the international game,” said Pace President Rod Sands. “There’s a huge opportunity there for us.”
The purchase is not expected to affect Pace’s 471 full-time workers or change the way Pace Picante Sauce is made, Sands said.
“It’s still going to be made in San Antonio by people who know what picante sauce should taste like,” he said.
Picante is a Spanish adjective meaning biting or highly seasoned.
Pace’s advertising brags about its San Antonio roots, sneering at another hot sauce brand made in New York City.
Officials of Camden, N.J.-based Campbell said they plan to explore international sales of Pace products, but added that it is too early to say if factories or employees will be added.
Campbell said U.S. supermarket sales of Mexican sauces--primarily picante sauce and salsa--grew at an annual rate of 13% from 1988 to 1993, when they totaled about $700 million.
Pace is the leading picante sauce in retail and food service sales. The company is projected to have 1994 sales of $220 million and hefty profits from regular business operations of $54 million.
Distributed in the United States and Canada, Pace salsa has market shares of 27% in grocery stores, 80% in discount clubs and 40% in the food-service industry, according to independent estimates.
William Leach, an analyst with the securities firm Donaldson Lufkin & Jenrette, said the purchase makes sense for Campbell because of Pace’s growth and similarities in the vegetable-based products of the two businesses.
But Leach noted that Pace Foods will account for only about 5% of Campbell’s profits. He said the price tag for the purchase seemed high, though Campbell can afford it.
“I think there’s probably some guy in San Antonio that’s probably got a big smile on his face today,” Leach said. “It’s a high price, but it’s a good business.”
Campbell, which plans to pay for the purchase with new debt, said the cost is expected to reduce net earnings per share by about 7 cents in fiscal 1995, which ends next July, and an additional 7 cents in fiscal 1996. After that it will add to profits, the company said.
In the fiscal year ending July 31, Campbell had net earnings of $630 million, or $2.51 a share, on sales of $6.7 billion.
Investors seemed unconcerned about the short-term profit decline Monday. Campbell shares closed unchanged at $43.75 on the New York Stock Exchange.
Campbell said it expects to complete the purchase in January pending regulatory approval.
Canpbell Picks Up Pace
Campbell Soup Co. agreed Monday to pay $1.1 billion for Pace Foods Ltd., maker of Mexican-style picante and chili sauces. Here is a snapshot of both companies:
Cambell Soup Co.:
* Headquarters: Camden, N.J.
* Chief executive: David W. Johnson
* Employees: 44,000
* Major products: Canned soups, frozen dinners, spaghetti sauces, other brand-name food products.
* 1994 revenue: $6.7 billion
* 1994 profit: $630 million
* Earnings per share: $2.51
* Fiscal year ends: july, 1994
* Stock price: Unchanged Monday at $43.75 a share. Pace Foods Ltd.:
* Headquarters: San Antonio, Tex.
* Chief executive: Christopher Goldsbury, Jr.
* Employees: 471
* Major products: Mexican-style picante and green chili salsas
Note: Before Monday, the company was privately held; no earnings information is being released.
Sources: Bloomberg Business News, company reports.
Researched by ADAM S. BAUMAN / Los Angeles Times