- Del Monte Pacific will pay all cash to buy the canned-food business of Del Monte Foods Consumer Products Inc. The $1.7 billion deal is funded through equity in the acquired company in addition to $930 million in debt financing through a group of banks.
- The deal gives Del Monte Pacific the No. 1 brand in canned fruits and vegetables in the U.S.and some $1.8 billion in sales.
- Del Monte Foods Consumer Products will change its name and focus on its pet-food business.
So look, $1.7 billion is a lot of money. There's no way around that. But let's look a little closer at the numbers. The final sales price valued Del Monte Consumer at roughly one year's worth of revenue. That's not much less than the $2 billion price analysts expected the company to fetch.
But it's far, far less than the $5.3 billion that a group of private equity firms led by KKR paid for Del Monte Foods Consumer in 2011. Given that canned foods are roughly half of Del Monte Consumer Products' revenue, it would appear that KKR et al are destroying sizeable value.
We don't want to be too cynical. We recognize that it takes a particular type of genius to run a private equity fund -- a genius that apparently involves collecting obscene amounts of money in management fees while destroying a brand.
We wish Del Monte Pacific good luck, But it faces a number of challenges. First, American tastes have changed. Canned foods aren't as popular as they were a few years ago. Second, it ain't easy to bounce back from the damage that private equity owners tend to do to a company.