TreeHouse Agrees To Buy Sturm Foods For $660M

TreeHouse Foods Inc. agreed Monday to acquire Sturm Foods Inc., a private-label manufacturer of hot cereal and powdered soft drink mixes, from HM Capital Partners LLC and other shareholders for $660 million.

Bank of America Merrill Lynch is financial adviser to TreeHouse Foods on the transaction, and Winston & Strawn LLP is legal counsel. Deutsche Bank AG is financial adviser to Sturm and HM Capital with respect to the transaction, and Vinson & Elkins LLP is legal counsel.

TreeHouse said it expects the deal to boost its presence in private-label dry groceries, expand earnings margins and enhance cash flows, as well as improve the company's research and development, packaging, mixing and flavoring capabilities.

The deal will boost TreeHouse's pro forma sales to about $1.9 billion after the transaction is complete, TreeHouse said. The transaction also is expected to add about 38 cents to 40 cents per share to earnings on an annual basis.

"Sturm Foods is a significant addition to TreeHouse, both strategically and financially," said Sam K. Reed, chairman and chief executive of TreeHouse Foods. Reed added that the hot cereal and powdered drink mix categories "are large and growing, offer health and convenience benefits, and have significant private-label shares of 26% and 20%, respectively."

Under terms of the deal, the purchase price is expected to be funded by a combination of $400 million in new debt issuance, about $100 million in equity stock issuance and the balance accessed from borrowings under TreeHouse's existing revolving credit facility.

Both the financing and the acquisition are expected to close in the first quarter of 2010. TreeHouse Foods said it expects to incur about $19 million in one-time costs associated with inventory revaluations, transaction fees and issuance costs within the first year following closing.
Manawa, Wis.-based Sturm, founded in 1905, was acquired by HM Capital Partners in May 2005, and Sturm's CEO, Michael Upchurch, maintained an equity stake in the company.
TreeHouse was spun off from Dean Foods Co. in 2005 and first lady Michelle Obama had been a director of the Westchester, Ill.-based food manufacturer but resigned her post in May 2007 when her husband became a presidential candidate.

TreeHouse also raised its 2009 earnings-per-share guidance. It sees earnings of $2.10 a share to $2.12 a share, excluding items, compared with its prior view of $2.07 to $2.09 a share.
For 2010, excluding the impact of the acquisition, the company expects to earn $2.32 a share to $2.37 a share.