Post Buys Minnetonka’s Michael Foods For $2.45B

Post Buys Minnetonka’s Michael Foods For $2.45B

In the largest transaction in either company’s histories, Post, known for its huge cereal business, is acquiring Michael Foods, a large Minnesota-based maker of packaged food products.

Minnetonka-based Michael Foods, Inc., announced Thursday that Post Holdings, Inc., plans to acquire the company for $2.45 billion.
The news comes a couple months after reports that the company was on the auction block.
Michael Foods, one of Minnesota’s largest private companies, provides processed egg products, refrigerated potato products, and specialty dairy products. Its brands include Papetti’s, Crystal Farms, AllWhites, and Simply Potatoes, among others. St. Louis-based Post is the producer of cereals like Raisin Bran, Honeycomb, and Honey Bunches of Oats.
The deal is expected to close in the second quarter of 2014 but is subject to closing conditions. Post said it plans to pay for the company with about $1.8 billion in credit from various lenders as well as cash on hand.

In addition to the $2.45 billion, Post said it will make a payment of $50 million on the first anniversary of the closing date, intended to represent the value of certain tax benefits that Michael Foods is expected to receive due to the acquisition.
Arkansas-based food production giant Tyson Foods was reportedly bidding on Michael Foods in February when it was on the auction block. At the time, national media outlets reported that a potential bid could range from $2 billion to $2.5 billion.  
Michael Foods will operate independently and will remain under the leadership of its current management team, including CEO Jim Dwyer. And according to Michael Foods representative Diane Sparish, the deal will also not result in any employee base job loss or relocation.
“The entire Michael Foods team is excited to join Post Holdings,” Dwyer said in a statement. “We believe our business will benefit from Post’s portfolio management approach and from our continued focus on the breakfast daypart, expanding egg consumption to all dayparts, and delivering convenient meal and snack choices to consumers.”

Michael Foods ranked as Minnesota’s 11th-largest private company in Twin Cities Business’ “Black Book.” In 2012, its revenue totaled $1.86 billion, and the company employs roughly 3,500.

Michael Foods said earlier this week that it expects to report $48 million in adjusted earnings for the quarter that ended March 29. The company said that, since 2008, its adjusted earnings have grown at a compounded annual rate of 5.3 percent. For the 2014 calendar year, Post said it expects Michael Foods to generate between $255 million and $270 million in adjusted earnings.

Michael Foods last changed hands in 2010. At that time, Thomas H. Lee Partners, a Boston-based private equity firm, sold Michael Foods to GS Capital Partners, an arm of financial giant Goldman Sachs, for $1.7 million.

Post said the Michael Foods deal it will be its largest transaction in the company’s history and that the deal will increase the company’s long-term revenue and profit growth potential. Post said it expects to benefit from roughly $10 million in “synergies” as a result of the deal.
“Post remains focused on diversifying its business to capitalize on shifts in consumer behavior towards increased consumption of protein and away-from-home breakfast occasions,” the company said in a statement.

Goldman Sachs and Bank of America Merrill Lynch are acting as financial advisors for the recent transaction.