Milling & Baking News - April 25, 2017 - 10

Business X

Post Holdings to acquire Weetabix
Food Co. for $1.77 billion
Continued from Page 1

they will help us open doors for continued expansion."
In an April 18 conference call with
analysts, Mr. Vitale said the acquisition of Weetabix "perfectly fits the bill
as the best way for Post to grow internationally."
Weetabix is the No. 2 manufacturer in the U.K. readyto-eat cereal market, with
its flagship Weetabix brand
holding the No. 1 brand position, Mr. Vitale said. But
the company also has operations in North America,
South Africa, Germany and
Spain. Weetabix Food Co. is
also the majority owner of a
joint venture in Kenya that
serves the African market.
"We often use the term
'iconic brand' and it tends
to be a bit overused, but for Weetabix,
it's perfectly apt," he said. "It is rare
to be able to acquire a brand with this
level of market share and awareness in
a large mature market."
In recent years, Weetabix said it has
seen strong growth in China, which
is now its third-largest market after
the U.K./Ireland and North America.
Post Holdings has agreed in principle
to establish a joint venture with previous owners the Bright Food Group
and Barings Private Equity Asia
to manage the Chinese operations

once the acquisition is complete.
Mr. Vitale said Post plans to approach the U.K. market from a more
geographic rather than product focus.
"We intend to add Post's products
to Weetabix over time," he said. "We
have had good success in the U.S. in
both the cereal and active nutrition

(markets) and hope to replicate this
success in the U.K."
At the closing of the transaction, Sally
Abbott, Weetabix's director of marketing, will become managing director of
Weetabix U.K. and Ireland and report
to Mr. Vitale. Mr. Turrell will assume the
newly created role of chairman of Weetabix with responsibility for overseeing
the integration of Weetabix into the Post
portfolio. The other members of Weetabix's existing management team will
continue to lead the organization.
The transaction is expected to close

Moody's affirms Post ratings on
heels of Weetabix deal
NEW YORK - Moody's Investors Service
has affirmed all its debt ratings of Post
Holdings, Inc. following the St. Louisbased company's April 18 announcement
that it has agreed to acquire U.K.-based
Weetabix Food Co. for $1.77 billion. The
ratings agency also maintained its "stable"
outlook for Post.
"The ratings affirmation reflects the
slightly negative effect that the proposed
transaction will have on financial leverage
and the resulting increased exposure to the
declining, but highly profitable ready-toeat cereal category," Moody's said. "Positively, Weetabix will add new geographies
that could allow Post to extend its mostly
U.S. brands overseas."
Moody's said while Post could fund
most of the acquisition internally with its
10 / April 25, 2017 XMilling & Baking News

$1.5 billion of cash on hand, indications
are the company is considering financing
a portion of the transaction with an incremental secured bank term loan.
Moody's affirmed Post's corporate family
rating at B2, a level the ratings agency said
reflects Post's investment holding company
profile that is characterized by a "growth
through acquisitions" strategy and related
periods of high financial leverage.
The ratings could be downgraded if operating performance deteriorates, if debt
to EBITDA is sustained above 7 times, or if
free cash flow turns negative, Moody's said,
while the ratings could be upgraded if the
pace of Post's acquisitions slows, operating
profit margins stabilize in the R.-T.-E. cereal
and egg businesses and debt to EBITDA is
likely to be sustained below 5.75 times. MBN

in the third calendar quarter and is
subject to closing conditions, including the expiration of waiting periods
under U.S. antitrust laws.
Mr. Vitale said the combined company is expected to have pro forma
sales of $5.5 billion and pro forma adjusted EBITDA of $1.1 billion.
Additionally, Mr. Vitale during the
call elaborated on several sources of
synergy potential between the two
companies, including meaningful
cost-reduction opportunities
through leveraging manufacturing and supply chains
and optimizing the North
American
go-to-market
structure and eliminating
duplicate costs across support function capabilities.
"I would add that the
process of combining Post's
foods and nonbrands continues to yield cost savings
as we review each business
process," he said. "We expect
that similar approach will
yield similar results with Weetabix.
Last, we believe there are potential
revenue synergies with this transaction, including expanded distribution
of Post's products into the U.K. and
other international markets. Specifically, we are excited to participate in
the developing active nutrition market
in the U.K. I mentioned that Weetabix
has introduced a protein drink, and
we expect to be able to add to that
portfolio. There are a number of cash
flow characteristics we look for in a
transaction, and Weetabix meets each
of them."
He noted that the synergy potential,
while not of the same scale, is similar
to that of the company's combination
with MOM Brands in 2015.
"We have a fully functioning business
in North America that fits quite nicely
with our consolidated Post Consumer
Brands' North American platform," Mr.
Vitale noted. "Beyond that, we also expect there to be benefits merely by having better scale in common commodities, including packaging, which is a big
source of potential savings."
In conjunction with the acquisition
announcement, Post Holdings also released preliminary financial results for
the second quarter of fiscal 2017, which
ended March 31. The company said it
expects to report a loss of $4 million on
sales of $1.25 billion. The preliminary
results compare negatively to the same
period of the previous year when Post
Holdings recorded net income of $1.5
million on sales of $1.28 billion. MBN
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Milling & Baking News - April 25, 2017

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