Heinz Buys Quaker Oats Pet Food Business For $725 Million
PITTSBURGH (AP) _ Move over, Morris the cat. Here comes the Gravy Train.
H.J. Heinz Co., the maker of best-selling 9-Lives cat food, said Monday it will add Gravy Train, Ken-L Ration and other brands to its menu by buying Quaker Oats Co.’s U.S. and Canadian pet food operations for $725 million.
The deal gives Heinz 20 percent of the U.S. pet-food market, with $1.14 billion in sales. Only leader Ralston Purina Co. and Nestle Holdings Inc. are bigger.
The agreement essentially gets Quaker Oats out of the pet business to focus on people food: grain-based products and healthful beverages. Quaker bought Snapple Beverage Co. for $1.7 billion late last year and said last week it was selling its European pet food business to Dalgety PLC of Britain for $700 million.
But even with that deal and the sale of a Mexican chocolate business, Quaker still had nearly $1 billion in debt from the Snapple acquisition, leading some analysts to speculate the company would sell the domestic operations, too.
``For the first time in over 50 years, Quaker will be dedicated entirely to human food products,″ said Quaker Oats Chairman William D. Smithburg.
Investors cheered the Heinz purchase, which analysts said positions the company as a formidable pet-food rival. Its stock was up $1.25 to close at $40.87 1/2 in trading on the New York Stock Exchange. Quaker stock was unchanged at $34 per share.
The deal is the latest in a series of consolidations in the food industry, where it has become increasingly hard to make a big profit without a large share of the market.
``If you’re not one of the major players you have to make a decision to get bigger or get out,″ said John O’Neil, a food analyst at Oppenheimer & Co. ``There are certain economies of scale in production and economies.″
Heinz has used Morris the finicky cat to promote its 9-Lives cat food for years. Its other pet foods include Amore cat food, Reward and Skippy canned dog food and Meaty Bone dog snacks. The Quaker division also makes Cycle dog food and Kibbles’n Bits.
Ralston Purina is the leader in the $8 billion-a-year pet food business, with a 25 percent share of the market, according to Information Resources, a market research company. Nestle is No. 2 with 24 percent, including Friskies cat food and Alpo dog food, which it is buying from Grand Metropolitan PLC.
Heinz had shared the third place spot with Mars Inc.
``Ralston used to have leadership position all to itself,″ said John M. McMillin, a food industry analyst at Prudential Securities Inc. in New York. ``Now it will have two well-capitalized companies right at its heels.″
The acquired businesses will complement Heinz’ canned cat food operations and make the company the nation’s second-largest seller of dry dog food behind Ralston.
``This acquisition will allow us to continue our drive for sustained growth in the pet food business and will give us the opportunity to realize even lower operating costs,″ Heinz chairman Anthony J.F. O’Reilly said.
Quaker’s pet foods division has annual North American sales of about $540 million. Heinz Pet Products last year had sales of more than $600 million.
The Quaker pet food operation, based in Chicago, employs more than 900 people and has plants in Lawrence and Topeka, Kan., and Kankakee, Ill. and a research and development center in Barrington, Ill.
Heinz spokesman Edward I. Smith said it is too soon to say how the buyout would affect employment.
Heinz Pet Food Products, based in Newport, Ky., has plants in Bloomsburg, Pa.; Terminal Island, Calif.; Biloxi, Miss.; Perham, Minn.; and El Paso, Texas.
The Quaker deal, subject to regulatory approval, is expected to close shortly, Heinz said.
Heinz, with annual sales of about $8 billion, also owns major brands including Star-Kist tuna fish, Ore-Ida potatos, Weight Watchers and Budget Gourmet.