- An Illinois judge granted preliminary approval on Tuesday of a deal where TreeHouse Foods agreed to pay $27 million as part of a class-action lawsuit first filed in 2016 claiming the company overstated how its business was doing following the $2.7 billion purchase of Conagra Brands' private label business earlier that year. A hearing for final approval of the class-action settlement is scheduled for Nov. 16. A TreeHouse spokesperson declined to comment on pending litigation.
- The deal, reached in February following 11 months of negotiations between TreeHouse and the lead plaintiff, the Mississippi Public Employees Retirement System, was reached through the use of a mediator.
- The plaintiffs claimed TreeHouse, between Feb. 1, 2016 (the day the Conagra deal closed) and Nov. 2, 2016, "made false and/or misleading statements and/or failed to disclose" that its private label business was struggling; its acquisitions strategy was underperforming; and it had overstated its financial guidance.
TreeHouse grew into the largest private label food maker through the combination of more than 40 mergers. Its position in the fast-growing segment pushed its stock price above $100 a share in July 2016 as investors banked on TreeHouse's growth to last as they loaded up on its shares.
But as the class-action settlement noted, the company on Nov. 3, 2016 announced it was lowering guidance; its president, who had been on the job fewer than six months, was resigning; and TreeHouse was appointing a new CFO. Its stock price plunged nearly 20% the day of the announcement to $70. Investors wasted little time going after the company.
Since the Conagra deal and subsequent class-action lawsuit, TreeHouse has moved aggressively to streamline its business. Under CEO Steve Oakland, who took the helm in March 2018, TreeHouse has worked to improve relationships with retailers, close facilities, cut low-margin SKUs and divest units that were not longer core to its business. Its most recent divestiture came in June when it announced the sale of its ready-to-eat cereal business to Post Holdings for $85 million.
“We’ve rethought the way we look at our operations. We’ve rethought the way we’re organized as a company. We’ve rethought the leaders in that and we’ve rethought, quite frankly, our relationship with the customer,” Oakland, a former top executive at J.M. Smucker, said in February 2019. “I think our strategy is fundamentally different. I think our strategy is about how do we operate ... how do we recognize what this opportunity is and take advantage of it.”
Despite a healthier business internally, TreeHouse has continued to face challenges outside its corporate walls. The maker of private label bars, dressings, oatmeal and other offerings failed to benefit from the demand for food during the pandemic as much as other brand-name CPG competitors because of capacity constraints and supply chain problems.
Its stock price, languishing in the $40 range, caught the attention of activist investor Jana Partners, which took a 7.5% a stake in TreeHouse in February and appointed two independent directors to its board as part of an agreement. 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 company is now one-step closer to ending what was a volatile period in its history with the preliminary approval of the settlement this week. But TreeHouse, while on the right track, has a history of challenges to face despite its enviable position in private label.