Earthgrains Completes Metz Acquisition from Specialty Baking
By Bob Sperber
Having gained government approval, Earthgrains completed the acquisition of Metz Baking from Specialty Foods on Monday. Earthgrains Co., based in St. Louis, paid $625 in a stock purchase.
Metz, a subsidiary of Specialty Foods Corp. of Deerfield, IL, had annual sales of nearly $600 million in 1999. The acquisition brings Metz' brands and additional upper-Midwest territory into the Earthgrains fold. Earthgrains claims the largest market share of fresh bakery products in its territories, which now cover approximately half of the U.S. population.
In keeping with anti-competitive measures that paved the way for the merger, Earthgrains agreed to a consent decree with the U.S. Dept. of Justice to divest two brands in an area where the two bakeries markets overlap. (See below section, Two Brands to Be Divested.)
Earthgrains, whose annual revenues were more than $1.9 billion in fiscal 1999 from its fresh-bakery and refrigerated-dough businesses in the United States and Europe and now owns 64 bakeries.
Metz, a subsidiary of Specialty Foods Corp. of Deerfield, IL, had annual sales of nearly $600 million in 1999.
The new territory gained in the Metz deal, according to Earthgrains, gives it a leading market share for bread, buns and rolls in Chicago, Milwaukee, and Minneapolis, and a strong position in Detroit and Salt Lake City. In its existing territory, Earthgrains becomes the market- share leader in Kansas City and Omaha and strengthens its leadership position in Des Moines.
Analyst estimates for Earthgrains' earnings in fiscal year 2001, including Metz, range from $1.35 per diluted share to $1.50 per diluted share. The company is comfortable with the middle range of the estimates.
Factoring in the cost of the acquistiion, Barry H. Beracha, Earthgrains' Chairman and CEO, called the acquisition "very important and strategic" and said the company was still expecting earnings to "improve slightly in fiscal year 2001," when he expectes earnings growth to be 25 percent or more, depending on how well the companies are integrated with one another.
What's Left of Specialty?
Specialty Foods, produces, markets and distributed retail baked goods. The company's baking operations include the nation's third largest cookie business (Mother's Cake & Cookie Company and Archway Cookies) and Andre-Boudin Bakeries.
In January, the company signed an agreement to acquire Lew-Mark Baking Co. based in Perry, NY, and related affiliates that include the Archway cookie brand. Lew-Mark already has an exclusive license to the Archway brand cookie business in New York and New Jersey. (See related article).
Specialty Foods said it would use most of the Metz divestiture's proceeds to reduce debt, first and foremost by repaying its term loan, revolving credit facility and accounts receivable facility and will use a portion of the remaining proceeds to reduce additional debt.
Two Brands to Be Divested
Earthgrains agreed to divest most assets of two brands in keeping with the government's conditions for fair trade and competition.
The Colonial bread brand, which is distributed in Iowa and parts of Nebraska, northeastern Kansas, and northwestern Missouri, will be sold.
Earthgrains also agreed to Metz's Taystee brand in the same territory. The decree calls for Earthgrains to offer its Des Moines, IA, bakery for sale if the acquirer of the brands needs manufacturing capacity to supply those markets—a sale is expected in "the next few months," the company said. The company reports that sales of both represent less than $10 million in annual bread sales.