A company billed as one of the biggest makers of private-label and co-branded canned pet food in the U.S. has signed a deal to buy a beleaguered Canadian player in the same market.
Simmons Pet Food, which makes wet and dry pet foods at Siloam Springs in northwestern Arkansas, and steel pet food cans about 100 km southwest at Fort Gibson, Okla., near Muskogee, will pay about $239 million, cash, for Toronto-based Menu Foods.
That works out to $4.80 per unit in the Menu Foods Income Fund, which noted in a release Monday that price is a 46.8 per cent premium to its closing price Friday, and 65.5 per cent above its price of $2.90 on March 15.
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That was the day the company, hit hard by tainted-ingredient trouble in 2007, announced it was “evaluating alternatives to maximize unitholder value,” such as putting some or all of itself up for sale.
The sale, subject to a minimum two-thirds approval from Menu Foods unitholders at a meeting expected to be held next month, is expected to be closed early in the fourth quarter of Menu’s fiscal 2010.
Menu’s board has “unanimously” recommended its unitholders support the Simmons takeover, and about 45 per cent of Menu’s units are already committed to the deal, the company said Monday.
Tainted gluten
Menu took a substantial hit among pet food makers announcing major product recalls starting in spring 2007, following a scandal in China over tainted wheat gluten supplied to western pet food processors.
Menu’s recall began in March that year, stemming from indications that some Menu-made cuts-and-gravy dog and cat foods may have affected the renal health of some animals in the U.S.
Menu later set up a US$24 million fund to settle over 100 proposed class action lawsuits stemming from the recall.
Menu said a Chinese supplier of gluten, a protein ingredient used in many pet foods, had spiked its ingredients with melamine and other compounds to “artificially inflate” protein levels.
Menu, whose business is making private-label “wet” pet foods for U.S. and Canadian retail chains, in mid-February posted 2009 year-end net income of $13.7 million on $290.6 million in sales, up from a $6.8 million net loss on $260.6 million in sales in fiscal 2008.
“With this transaction, we are adding one of North America’s leading private label pet food manufacturers to our portfolio and further strengthening our company,” Simmons Foods chairman Mark Simmons said in Menu Foods’ release.
Arkansas-based Simmons Foods, whose annual sales run around US$1 billion, also operates a chicken business focused on national-level restaurant chains and major retailers.
It also runs a dry feed manufacturing business serving the dairy, cattle, aquaculture and pet food sectors.
Menu Foods had decided earlier this year to formalize and speed up its “evaluation” process ahead of the federal government’s plans to tax income trusts.
Companies such as Menu, which converted to income trusts before the federal government made its move in 2006, aren’t required until next year to pay tax on the income they distribute to their unitholders.
Canadian ag and food businesses such as Alliance Grain Traders, Village Farms, Ag Growth Industries and Premium Brands have already moved to shed their income trust status before the new tax structure takes effect.
