PepsiCo strengthens position in snack market

By Peter Stiff

- Last updated on GMT

Related tags: Sara lee, Snack food

PepsiCo has announced two acquisitions to bolster its snack food
portfolio: Sara Lee's European nut business and Stacy's Pita Chip
Co, the biggest pita chip maker in the US.

The purchase price of the nut business is €130 million ($413 million). The terms of the Stacy's deal have not been disclosed.

For Sara Lee, the sale of the nuts business, which generated €80 million ($94 million) in fiscal 2005, forms part of a plan to concentrate on its core food, beverage and household and body care businesses around the world.

The business comprises the Duyvis brand, which is sold in The Netherlands and Belgium, and the Benenuts brand, sold in France.

PepsiCo also intends to take both brands - leaders in their respective markets - into other markets where its own nut business, is already established. For example, in the US it produces nuts under its Frito-Lay brand.

Meanwhile Stacy's, with estimated sales approaching $60 million ($71 million) this year, will operate as a unit of Frito-Lay North America. It will remain based in Massachusetts, securing the safety of its 100 employees.

Of the acquisition of the Sara Lee brands, Michael White, chairman and chief executive officer of PepsiCo International said:

"They will broaden our product portfolio by immediately giving PepsiCo a strong position in branded nuts, a large category that's increasingly popular amongst consumers interested in convenience, great taste and nutrition. This also will give us an important source of products to sell in other markets where we have an established nut business."

The two brands consist principally of roasted and coated bagged peanuts as well as mixes, noble nuts and extruded snacks.

The Sara Lee Corporation's chairman and chief executive officer, Brenda Barnes, explained the reasons behind the sale:

"A critical element of our transformation strategy is to divest a number of businesses, including the European nuts and snacks enterprise, that are not in our core categories, so that Sara Lee is a more focused, more disciplined, high-performing company for our shareholders."

Before a final agreement can be signed there must be a satisfactory outcome of the applicable works council proceedings and the Dutch competitions authority must grant approval.

Earlier this month Chicago-based Sara Lee reported a decline in sales in its first quarter, with net income hit hard as the company entered the ninth month of its five-year transformation strategy to shed unprofitable businesses.

Costs relating to the transformation plan negatively impacted the operating profit for all the company's remaining food businesses by 29 per cent to 148 per cent, with the US retail bakery business being hardest hit. This segment reported a $4millon (€3.5 million) loss for the quarter, compared to a profit of $9million (€7.5 millon) for the same period last year.

This is not the Sara Lee's first major sale; earlier this month the firm announced the €100 million ($118 million) sale of its European branded apparel business to an affiliate of private US investment firm Sun Capital Partners.

Last month the company also announced the sale of its US retail coffee business for $82.5m (€68m) and in August, it announced the sale of its international cosmetics business, a division that had generated $470m (€387.6m) in sales in 2004.

Earlier this month PepsiCo reported a 13 per cent net sales growth in its third quarter, with a worldwide snacks volume increase of 4.5 per cent, compared to a 10 per cent volume increase in its beverage division.

The firm, whose portfolio includes 16 global brands with sales of $1 billion or more, experienced a net sales increase of $2bn (€1.5bn) in the first nine months of its fiscal 2005 to $22.46bn (€18.7bn).

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