Kraft to Buy Balance Bar for $268 Million
Tapping into a growing demand for health products and natural foods, Philip Morris Co.’s Kraft Foods, the nation’s largest packaged-foods company, agreed Friday to purchase Carpinteria-based Balance Bar Co., the No. 2 maker of energy bars, for $268 million.
The agreement is the second nutrition-oriented purchase announced by Kraft in less than a week. Analysts say it’s a signal that the country’s staid food manufacturers are now pushing into so-called functional foods to boost their sluggish bottom lines.
The deal, which has received majority shareholder approval, gives Kraft entry to the $376-million energy bar business and access to the weight-loss products arena through Balance Bar’s long-term food licensing agreement with Jenny Craig Inc.
Earlier this week, Kraft said it would purchase Boca Burger, a closely held company that makes soy-based meat alternatives.
Kraft will pay $19.40 a share for Balance Bar, a 37% premium to Balance Bar’s Thursday closing price of $14.13. Balance Bar posted revenues last year of $100.9 million, up from $1 million just four years earlier. Shares of Balance Bar soared $5 on the news to close Friday at $19.13 on Nasdaq. Philip Morris edged down 58 cents to $22 on the New York Stock Exchange. Analysts say Kraft’s marketing muscle will expand Balance Bar’s distribution exponentially, giving the 90-employee firm a huge competitive advantage over rivals Clif Bar and PowerBar.
“It’s going to become a category dominated by the big food companies,” said Laura Huskins, a food industry analyst with Boston-based Adams Harkness & Hill.
Kraft executives said they targeted Balance Bar because they felt it had a broader appeal than its competitors that cater mainly to fitness enthusiasts.
“We feel that with Balance Bar we have more of an opportunity to grow the brand,” said Dave Owens, vice president of strategy for Kraft. “It’s more of a meal replacement that can be eaten on the go.”
Balance Bar officials say they needed the capital and sales force of a company like Kraft to get the Jenny Craig line off the ground.
“For a company like ours to be competitive, we needed the market muscle of a Kraft,” said Thomas Flahie, Balance Bar’s chief financial officer.
Balance Bar was founded in 1992 by Chairman Thomas Davidson and Executive Vice President Richard Lamb after the pair and two other investors acquired the rights to a bar based on Barry Sear’s “The Zone” diet, which prescribes a daily diet of 40% carbohydrates, 30% protein and 30% dietary fat.
Originally sold through natural foods stores, the bars were introduced in supermarkets and other mainstream outlets in 1997. Now 64% of the firm’s sales come from supermarkets, warehouse stores and drugstores.
Balance Bar’s top management officials will remain at the company after its acquisition, Flahie said. Company officials said they do not know if there will be layoffs or if the headquarters will move from Southern California.
Kraft’s deal for Balance Bar is the largest and latest of a string of other recent natural foods acquisitions, including H.J. Heinz Co.’s investment in the Hain Food Group, Kellogg Co.’s purchase of soy burger manufacturer Worthington Foods and General Mill’s purchase of Small Planet Foods, a leading producer of organic canned and frozen foods.
