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News Release This article appeared in the February 2005 issue of Mergers & Acquisitions, The Official Publication of Association for Corporate Growth HORMEL FOODS DIVESTS VISTA
INTERNATIONAL PACKAGING INC. Hormel Foods Corp., through its strategic divestiture program, sold Vista International Packaging Inc., to a company formed by Keystone Capital Inc. Hormel Foods is a multinational manufacturer and marketer of consumer-branded meat and food products, many of which are among the best known and trusted in the food industry. Headquartered in Austin, Minn., with sales of more than $4.7 billion, the company established a corporate acquisition and divestiture program consistent with the company’s strategic plan and mission statement. As part of this program, management identified its wholly-owned subsidiary, Vista International Packaging, as a non-core asset and retained the J.H. Chapman Group, LLC to conduct the divestiture. Vista International Packaging, headquartered in Kenosha, Wis., is a leading producer and marketer of high-quality casings and other food packaging products to the processed meat industry. One of the largest U.S. companies in the casings industry, Vista had a long history of profitable growth and had operated on a stand alone basis with few functions or services performed by Hormel. Hormel was supportive of the Vista management team and desired a buyer that would offer critical team members with continuing employment. The management team was credited with significant productivity improvements while maintaining sales in the competitive industry. The senior management team had been with the company or other Hormel divisions for more than 113 years combined. The transaction was complicated by the nature of several critical third-party relationships. Vista purchased the majority of its raw stock casings form two foreign companies. An Asian supplier had been supplying product on an exclusive basis for more than 20 years with a one-year cancellation contract. The other supplier located in Europe had been supplying Vista for more than 30 years under an exclusive agreement with a two-year cancellation provision. Any buyer would need both sources to continue supplying product. Further, because Hormel’s purchases represented approximately 20% of company revenues and almost 70% of Hormel’s total sausage casing needs, the right buyer would have to meet stringent criteria. Strategic buyers were considered and contacted as they would likely pay more than equity fund sponsors. Strategic buyers posed a dilemma for Hormel as it wanted to continue the dual sourcing of some of its casing needs and the most likely strategic buyer already provided that second source supply alternative. Further, some of the members of Vista management may not be needed should a competitor acquire the company. Chapman’s focus concentrated on financial buyers that would see the merits of a continuing relationship with Hormel, Vista’s strong growth prospects in sales and profitability and its excellent management team, and who could close the transaction on an expedited basis. Chapman identified Keystone as a logical buyer given its interest in acquiring market leaders in niche industries, its willingness to own businesses for a longer period of time, and its proven history of closing transactions in less than 40 days. Keystone quickly grasped the need for long-term supply agreements and established rapport with the foreign suppliers and Hormel. Ultimately, long-term supply agreements were negotiated with both suppliers as well as a long-term purchase agreement with Hormel. Keystone’s strategy for its acquisition of Vista is to aggressively
pursue organic growth opportunities and to use the Vista as the
platform to acquire other quality, market-leading companies in the
broader food packaging industry. For Hormel, the sale has both redirected
resources to core opportunities and fulfilled a commitment to Vista’s
management.
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