UPDATE: March 2, 2021: TreeHouse Foods said it will name two new independent directors to its board, John Gainor Jr. and Kenneth Tuchman, as part of an agreement with Jana Partners. "We are encouraged by the steps the company has been taking, including these director additions, and by the ongoing commitment to unlocking stockholder value," Barry Rosenstein, managing partner of Jana, said in a statement.
UPDATE: Feb. 10, 2021: This story has been updated with reaction from TreeHouse Foods.
- Jana Partners has taken a 7.5% a stake in private-label food maker TreeHouse Foods, according to a filing with the U.S. Securities and Exchange Commission.
- In its filing, Jana said it believes TreeHouse shares are "undervalued and represent an attractive investment opportunity," and that the company should consider a sale of its business. The activist firm said it had "constructive discussions" with TreeHouse and plans to nominate three directors to its board.
- TreeHouse, the nation's largest manufacturer of private-label products thanks to a combination of more than 40 mergers, has spent much of the past several years closing plants, cutting jobs and jettisoning units to become a more focused, nimble company. Private-label manufacturers have not benefited from an uptick in demand during COVID as many predicted, although 2021 may prove to be more promising.
TreeHouse has been working aggressively to improve its business under CEO Steve Oakland, who joined the company in 2018 from J.M. Smucker. When he took over, he said the company was operating so inefficiently that despite being in the fast-growing private-label space it wasn't able to take advantage of its scale to expand distribution.
"Quite frankly, because of the poor performance during this period of time, we lost some customers. We lost some business. We lost some bids. We probably lost some ties because we hadn’t proven that we could perform,” Oakland said in a 2019 interview. "I think we didn’t give the customer trust in our ability to execute. We had gotten to the point where the complexity was impossible.”
During his time at the helm, Oakland has streamlined TreeHouse's business and improved its relationship with customers. The company also continues to generate strong cash flow. Even though private-label makers have not benefited from in-home dining as much as expected during the pandemic, their fortunes are expected to turn this year as consumers become more value-conscious. TreeHouse finds itself in the sweet spot of the food space — factors that no doubt played a role in Jana's involvement.
In its SEC filing, Jana encouraged TreeHouse to consider a sale of the company as it looks for ways to increase shareholder value. Jana has a long record of agitating for change at companies it considers undervalued, and in many cases it has been successful at triggering a sale. Jana pressured Whole Foods to sell itself after it bought a 9% stake in the company; the grocer was subsequently acquired in 2017 by Amazon. It also purchased shares in Pinnacle Foods before it was sold to Conagra Brands.
Jana said it intends to nominate three individuals for election at TreeHouse's annual meeting; if successful, this would give the activist firm a big say over the direction of company. Currently, half of TreeHouse's 12-member board is up for election this year, according to the company's website. Wall Street reacted favorably to Jana's involvement, with TreeHouse's stock surging 19% on Wednesday to $50.70 a share. TreeHouse is scheduled to report earnings on Thursday.
TreeHouse said in a statement it has had "multiple discussions" with Jana during which the investor supported the actions TreeHouse "has taken to drive growth and profitability and enhance stockholder value." The private label maker also said it was "open to constructive input from all stockholders."
It's largely uncertain who would want to purchase TreeHouse, though a private-equity firm would be the most likely option. In 2018, Post Holdings created a new private-label brand subsidiary, 8th Avenue Food & Provisions. It later sold 39.5% of the business to private-equity firm Thomas H. Lee Partners.
Large CPGs could be scared off by the challenges Conagra Brands had in integrating Ralcorp Holdings' private-label business after it purchased it for about $5 billion in January 2013. Conagra later sold its private-label business to TreeHouse three years later for $2.7 billion.