Commentary

Post Diversifies Its Holdings With Bob Evans Farms Purchase

Cereal maker Post Holdings is adding Bob Evans Farms sausages and frozen veggie side dishes to its menu, paying $77 per share in a deal valued at $1.5 billion. The acquisition was endorsed by the boards of both companies and is expected to close in early 2018 following the approval of antitrust regulators and Bob Evans shareholders.

Post “is paying a rich price to add more popular refrigerated breakfast foods and side dishes to its supermarket offerings,” writesBloomberg “Gadfly” columnist Tara Lachapelle. “Including the assumption of a small amount of debt, Post is effectively paying about 15 times projected annual adjusted Ebitda of $107 million and nearly 16 times trailing 12-month Ebitda.”

Still, the Wall Street Journal’s Annie Gasparro and Joann S. Lublin report that the Bob Evans’ board was not unanimous in voting approval — which they characterize as an “unusual” circumstance. The company confirmed their information is correct but would not comment further on the board’s deliberations. 

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The acquisition “will meaningfully enhance Post’s refrigerated side dish offering, provide Post with a presence in breakfast sausage and will immediately provide Post with a leading position in the higher growth perimeter of the store. The combination with Bob Evans will also strengthen Post’s presence in commercial foodservice,” according to the release announcing the transaction.

Post will combine its existing refrigerated retail egg, potato and cheese business with Bob Evans, establishing a refrigerated retail business within Post. Mike Townsley, Bob Evans’ current president and CEO, will lead it. Jim Dwyer remains as president and CEO of the Michael Foods Group, which Post acquired in 2014 for $2.45 billion, managing the commercial foodservice egg, potato and pasta businesses, including the Bob Evans foodservice business.

“Earlier this year, Bob Evans split its grocery businesses from its struggling restaurant chain following years of pressure from activist investor Thomas Sandell. The packaged foods business remained publicly traded and retained the Bob Evans name. As of the most recent regulatory filings in June, Mr. Sandell and his firm Sandell Asset Management Corp. didn’t have a stake in Bob Evans,” the WSJ’s Gasparro and Lublin report.

“Known for its past ties to the restaurant chain that bears the corporate name, Bob Evans Farms also makes refrigerated potato, pasta and vegetable-based side dishes, pork sausage, and other refrigerated and frozen convenience food items under the Bob Evans, Owens, Country Creek and Pineland Farms brands,” reports Roger Yu for USA Today. “The company's food-service unit sells sausage, sausage gravy, breakfast sandwiches and side dishes to customer specifications.”

St. Louis-based Post Consumer Brands is the third-largest cereal company in the United States after Kellogg and General Mills. Its brands include Honey Bunches of Oats, Grape Nuts and, as of April, Wheetabix, which it bought from China's Bright Food Group for $1.76 billion.

“Rob Vitale, Post’s ambitious chief executive, has been seeking to consolidate parts of the cereals, snacks and protein bars markets through a series of deals since the company was spun out of Ralcorp Holdings in 2012. The move into pork sausages and frozen goods further broadens Post’s portfolio,” write James Fontanella-Khan and Jessica Dye for Financial Times.

“Vitale’s bet on packaged goods comes at time when consumers are increasingly moving away from processed food in favor of fresh produce, which they perceive as healthier.”

According to the company’s homey origins story, founder Bob Evans and his wife, Jewell, lived on the Bob Evans Farm in southeastern Ohio for nearly 20 years, where they raised their six children in a  large brick farmhouse known as the Homestead. Formerly an inn on a stagecoach route, it’s now on the National Register of Historic Places.

“Part of the deal … is that Bob Evans’ operations and employees will remain in Central Ohio, a spokeswoman said,” Katy Smith reports for Columbus Business First. “‘It's nothing but good news,’ said CEO Mike Townsley. ‘Part of the appeal to Post in Bob Evans was your company is only as good as the quality of your people. We are absolutely committed to staying here in Columbus, Ohio.’” Smith writes.

Bloomberg’s LaChappelle, meanwhile, is cutting Post some slack on the price it’s paying, and its direction in general.

“While Post has certainly stretched its balance sheet this year — and I've been critical of some other companies doing that — its move to diversify further away from the traditional U.S. cereal market is smart and timely. Cereal, along with canned soup, is among food categories with the worst growth outlooks in the coming years.”

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