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Del Monte Foods Co (DLM-N) agreed to be bought for $19 US a share, or more than $5.3 billion US including debt, by a group led by Kohlberg Kravis Roberts & Co, the foodmaker said on Thursday.
The deal to acquire Del Monte, maker of Meow Mix cat food, Milk-Bone dog biscuits and canned vegetables, is the latest transaction in a flurry of private equity activity.
The $19 per share offer represents a 5.6-percent premium over Del Monte's closing stock price of $17.99 on Wednesday, and a premium of about 23 percent over its opening price on Nov. 18, when media reports about a possible deal began circulating. Del Monte's stock has surged 62 percent this year.
Vestar Capital Partners and a fund run by Centerview partner James Kilts will join KKR in the deal, which ranks as one of the largest U.S. leveraged buyouts of the year. The three partners will assume about $1.3 billion in Del Monte's debt.
Del Monte can try to solicit high offers until Jan. 8, 2011 during a so-called ‘go shop’ period. Del Monte said it expects the deal to close in March if it gets no higher bid. It also said it plans to keep its headquarters in San Francisco.
In September, Del Monte cut its full-year sales forecast due to higher rebates paid to retailers to spur consumer spending. In July, Del Monte first cut its sales estimates for the year, citing a shift in marketing spending towards trade promotions.
Such promotions include amounts the company pays to retailers to lower the selling price of its products to increase their competitiveness.
San Francisco-based Del Monte has a history of private equity ownership. TPG Capital purchased the company from a consortium of investors in 1997 for a reported $800 million, including debt. TPG later took Del Monte public, raising about $250 million, and gradually reduced its stake through the years.
Centerview recently bought pizza maker Richelieu Foods Inc. from Brynwood Partners. Vestar has invested in consumer-focused companies including Birds Eye Foods and Sun Products.
The Del Monte deal is the latest high-profile private equity deal. Earlier this week, private equity firms TPG Group and Leonard Green & Partners LP struck a deal to buy J Crew Group Inc. for $2.86 billion.
TPG has also been pursuing hard-disk drive manufacturer Seagate Technology, which has a market capitalization of $6.53 billion, sources previously told Reuters. Rival Carlyle Group also recently struck a number of deals, including a $2.6 billion deal to buy Syniverse Technologies Inc.
Private equity firms are under pressure to invest billions of dollars raised over the past few years, with some funds facing deadlines on their investment periods, and firms have become increasingly active in buying assets over the past few months.
Barclays Capital Inc. served as financial advisor to Del Monte Foods. Centerview Partners acted as lead financial advisor to KKR and its partners in the deal. KKR, Centerview and Vestar secured debt financing from Bank of America Merrill Lynch, Barclays Capital, JPMorgan Chase, Morgan Stanley and KKR Capital Markets LLC.