On the Street: Diamond to Buy Kettle
March 4/Mergers & Acquisitions Week -- Diamond Foods Inc. entered into a definitive agreement to acquire Kettle Foods from Lion Capital LLP for $615 million in cash. Pursuant to the agreement, Diamond will acquire Kettle operations in both the U.S. and the United Kingdom. The transaction is structured as a purchase of all of the outstanding shares of a parent holding company of the U.S. and U.K. Kettle operating entities. It is expected to close by the end of Diamond's fiscal year 2010, subject to customary conditions, including regulatory approval.
"Kettle Foods' passion for making great tasting, natural potato chips has attracted a loyal consumer following and shaped a truly premium brand that has our deep respect," said, Michael J. Mendes, chairman, president and CEO of Diamond Foods. "Diamond and Kettle Foods share a history of relentless focus on flavor and product quality and working collaboratively with our retail partners. By adding Kettle, including its talented team of employees, our snack business will have greater scale, which will help us to drive even greater innovation in the snack market. We expect that the acquisition will be accretive in the first year and is a strong, strategic fit to better support our long-term growth plans."
Lyndon Lea, Partner of Lion Capital, said, "Our successful ownership of Kettle Foods reflects Lion's distinctive strategy of investing in and growing strong consumer brands. Since our acquisition in 2006, we have dramatically increased Kettle's strategic value through category-leading innovation and penetration gains in the U.S. and U.K. snacking markets, leading to double-digit annualized growth in group revenues and 30% annualized growth in group profitability. In the U.S., we doubled the capacity of the business through investment in a new manufacturing plant in Wisconsin, which supported even higher rates of profit growth within the U.S. market. We are pleased to be selling this iconic brand and highly strategic asset to Diamond Foods, whose heritage of delivering the consumer premium snacking products and market-leading innovation complements the core tenets of Kettle Foods."
Diamond expects the Kettle Foods acquisition will be accretive to earnings per share (EPS) in fiscal 2011 after accounting for increased marketing support and financing costs and excluding costs associated with the transaction and integration. The purchase is expected to be funded partially with a new five-year $600 million credit facility, a future equity offering and available cash resources. Assuming the transaction closes prior to the beginning of fiscal 2011, the company is expecting full year EPS to be in the range of $2.25 to $2.35.
"In Diamond Foods, we are putting the Kettle brand in great hands," said Tim Fallon, president of Kettle Foods North America, who helped steer the company's double-digit growth over the past several years and will remain at the helm of the U.S. operations. "This is a company with a history of investing in new product development and creative marketing, which will only amplify the work we're doing to attract new customers and innovate in the premium category."
Jeremy Bradley, the managing director of Kettle's U.K. business, added, "with a strong track record of brand-building, innovation and growth in the snack category in the U.S., Diamond Foods is an ideal partner to build upon our success and drive the next phase of Kettle Foods. While Diamond Foods has a long history of international sales, Kettle's strong retail and operational foundation in the U.K. offers Diamond a platform, led by Kettle Chips, for expanding in the U.K. and Europe."
From the March 15, 2010, Prepared Foods E-dition
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