Milling & Baking News - September 21, 2010 - 12

Business 

TreeHouse Foods to acquire S.T.
Specialty Foods for $180 million
WESTCHESTER, ILL. - TreeHouse
Foods, Inc. has entered an agreement to
acquire S.T. Specialty Foods, a company of Windjammer Capital Investors,
for $180 million in cash plus an additional $15 million in cash if the company achieves certain earnings targets
for the 12 months ending Dec. 31, 2010.
S.T. Specialty Foods makes private
label macaroni and cheese, skillet dinners, side dishes and salads with sales
of about $100 million. The company
is based in Brooklyn Park, Minn., and
operates two manufacturing facilities
- one in Brooklyn Park and one in
Kenosha, Wis.
"We are delighted to acquire a
business that expands our portfolio with the leading private label manufacturer of
macaroni and cheese and
skillet dinners," said Sam
K. Reed, chairman and chief executive officer of TreeHouse. "S.T. has had
consistent growth since its inception
and will not only add to our broad
product portfolio for the retail grocery
channel, but it will also give us the opportunity to expand our offerings into
the lunch and dinner meal occasions."
Dale Schulz, president of S.T. Specialty Foods, added, "The acquisition
will align us with one of the fastest
growing food companies in North
America. We believe TreeHouse is an
excellent fit with not only our products but also with the culture we have
established here at S.T."
Expanding on the acquisition in a
Sept. 14 conference call with analysts,
David Vermylen, president and chief
operating officer of TreeHouse, said
the move is a further example of the
company's evolution.
"We have moved from being a
commodity-dependent company with
pickles to being a value-added company driven by categories such as salad
dressings, salsa, sugar-free beverages
and instant oatmeal," Mr. Vermylen
said. "Our acquisition of S.T. continues that evolution. S.T. is another
step forward in expanding our portfolio from being enhancer-dominated
to operating in more meal segments.
Sturm (acquired in March for $660
million) moved us into beverages and
breakfast. S.T. moves us into the lunch
and dinner main meal segment."
Mr. Vermylen said S.T. is a relatively
young company that built its business
by focusing on non-traditional retailers
12 / September 21, 2010 Milling & Baking News

that were not on the radar screen of older, more established companies.
"S.T.'s relationships with those retailers and ours with more traditional
retailers will benefit both companies,"
he said. He stressed that S.T. "is not
just a macaroni and cheese company."
"It is in rice dishes, potato dishes,
pasta salads and meat," he said.
But within macaroni and cheese the
company offers significant room for
growth, Mr. Vermylen said.
"What is very important about
S.T.'s business, at least in macaroni
and cheese, is that of its top 10 customers only three are measured
by the syndicated data services
and the three customers that are
measured by syndicated data,
S.T. doesn't have all of that
customer business," he
said. "So in total, what we
are seeing for S.T. is that, in those nonmeasured customers, the business has
been doing quite well. Very important
for the long-term growth potential of
S.T. was that, until a month ago, they
really weren't doing any business with
the country's largest retailer."
Mr. Vermylen also spoke highly of
the quality of S.T.'s product offerings
versus others in the marketplace.
"We have been hanging around the
rim on (S.T.) for two years and have
done a lot of product testing and research on the formulations that other
retailers are carrying versus what
S.T. is offering and we really think
that there is a superior product quality and innovation capabilities," he
said. "And I think it is getting in front
of those customers with the information that we have and showing them
what our capabilities are and how we
can help them build their private label
program in the different categories
that S.T. operates in."
Dennis Riordan, senior vice-president and chief financial officer of TreeHouse, said the transaction will add
between 11c and 13c in incremental
earnings on an annual basis.
"Although this is not our largest
acquisition, on a relative basis of purchase price to earnings accretion, this
will be the most value-added acquisition we have made as a company,"
Mr. Riordan said. He added that TreeHouse expects to incur one-time costs
of about 6c per share, which will be
expensed primarily in the company's
third-quarter results. MBN
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Milling & Baking News - September 21, 2010

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