K.K.R and Other PE firms set to Acquire Del Monte for $5 billion

Del Monte Foods agreed on Thursday to sell itself for $5.3 billion, including debt, to a group of private equity firms led by Kohlberg Kravis Roberts in what is the biggest leveraged buyout this year. The deal by K.K.R. and two other firms, Vestar Capital Partners and the buyout arm of Centerview Partners, is also the latest in a streak of food-related mergers and acquisitions.

While still associated with sliced peaches and fruit, the Del Monte of today draws roughly half of its $3.7 billion in annual sales from pet food brands like Snausages. (While it still sells canned fruits and vegetables, it no longer has ties to Fresh Del Monte Produce, which carries on the business of selling fresh pineapples and bananas). Del Monte is a relatively new entrant in the industry, having built its pet food business from virtually nothing through acquisitions. Those included purchases of Meow Mix Holdings and Milk-Bone dog biscuits, both in 2006.

The takeover of Del Monte — whose product line is now dominated by pet foods like Kibbles ‘n Bits rather than fruits and vegetables — would also be among the largest consumer-goods buyouts in recent years. Private equity firms have been on a tear this year, buoyed by billions of dollars in their war chests and the bond market boom that has supplied them with cheap debt to finance their deals.

Still, the relatively steady stream of takeovers has topped out at about $5 billion, a far cry from the $10-billion-plus deals during the buyout boom earlier this decade. While the junk bond markets have recovered from their lows during the financial crisis, private equity firms are still unable to raise the money needed to strike giant leveraged buyouts. Banks and private equity firms are still discussing how to complete larger deals. But for now, many of the larger buyout players have been able to adjust to what they call “the new normal” of smaller transactions.

Under the terms of the deal, the buyout group will pay $19 a share for Del Monte, a 40 percent premium to the food company’s three-month average stock price. The private equity firms will also assume about $1.3 billion of Del Monte’s debt. The deal is expected to close in March, although under the provisions of a so-called go-shop period, the company will have until January 8 to find a better offer.

A deal for Del Monte represents another trip into private ownership and a return to the fold of K.K.R., still led by two of its founders, Henry R. Kravis and George R. Roberts. The private equity firm had sold the brand in 1990 as part of its landmark $25 billion takeover of RJR Nabisco. Del Monte passed through other ownership changes before being taken public by TPG in 1999.

Pet food merchants, and food businesses more generally, have also proved attractive for private equity firms, which are drawn to the companies’ stable cash flows. K.K.R. has already struck one buyout in the sector this year, acquiring the British retailer Pets at Home for $1.5 billion in January.

Centerview Partners advised the buyout group, along with Bank of America Merrill Lynch, JPMorgan Chase, Morgan Stanley and the law firm Simpson Thacher & Bartlett. Financing for the deal is being provided by Bank of America, Barclays Capital, JPMorgan, Morgan Stanley and K.K.R.’s own capital markets arm. Del Monte was advised by Barclays Capital and the law firm Gibson Dunn & Crutcher. Its board was advised by Perella Weinberg Partners.

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Shell Plans to Sell $3.3bn Stake in Woodside Petroleum

Royal Dutch Shell announced that it would sell almost a third of its interest in Woodside Petroleum for about $3.3 billion, nine years after it failed to take over the company. Shell, an British-Dutch company based in The Hague, said UBS had agreed to underwrite the sale of 29 percent of its stake in Woodside, selling more than 78 million shares at 42.23 Australian dollars ($42.64) a piece. After the sale, Shell will own nearly a quarter of Woodside, shares that it has agreed to keep in lock-up for at least a year.

Shell’s recent portfolio progress in Australia is aimed at a worldwide push to simplify the company and to improve its capital efficiency,  focus investments in Australia through direct interests in assets and joint ventures, rather than indirect stakes. 

In a another move to invest more directly, Shell and PetroChina together bought Arrow Energy’s Australian assets in March for 3.5 billion dollars. Shell hinted that another deal for Woodside might be in the works, saying that the lock-up would not apply under certain conditions to “a strategic third party” interested in a more than 3% stake. Woodside, based in Perth, is the largest independent energy company in Australia.

In September, The Australian business daily reported that Shell and BHP Billiton were in discussions last year for a takeover of Woodside, but an offer never materialized, and Shell later denied any plans for a takeover. Now that the Potash Corporation deal is on the rocks, BHP may try its luck closer to home.

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Will there be a U-turn in the Potash bid by BHP Billiton with the entry of PhosAgro?

PhosAgro, a major fertilizer producer in Russia, is said to be preparing a bid for the Potash Corporation of Saskatchewan to rival the $39 billion offer from BHP Billiton currently under consideration in Ottawa. Vladimir Litvinenko, chairman of PhosAgro has formally written a letter to Prime Minister Vladimir Putin asking for him to back the bid and muster support from Russian lenders.

Analyst predict that geopolitical importance the deal is such that it would give Russia control of 70 percent of the global potash trade and help it secure its food supply — an issue that came to the fore this summer as the country was wracked by drought and wildfires, leading to a scarcity in certain grains. Banks in Canada had made preliminary agreements to provide half the necessary funds, while rest are said to be obtained from Russian banks. The offer is not very realistic as the size of the bid represents an impossible amount for PhosAgro to raise by itself and also the businesses are too different in size for a deal to work without the involvement of the Russian state.

PhosAgro is a closely held company with close ties to Moscow. The Russian government holds a blocking interest in PhosAgro’s phosphate-producing subsidiary, Apatit While PhosAgro’s shareholders are not known but Andrey Guryev, a powerful Russian politician ranked 54th on Forbes’s list of Russia’s wealthy last year holds a major stake in the company.

Russia’s agrochemical industry has been in a period of upheaval. PhosAgro also announced in August that it was seeking to merge with Silvinit, another potash producer, although the merger was uncertain and other deals were rumored. One advantage a PhosAgro bid for the Potash Corporation would have over that of companies like Silvinit is that PhosAgro does not produce potash and thus would raise no antitrust concerns

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