Every once in a while, a big-ticket business transaction just seems to make a lot of sense. Monday morning, Motley Fool Income Investor pick Heinz
HP Foods is mostly about sauces, and Heinz will now have brands like Lea & Perrins, HP Sauce (very popular in Britain, I'm told), and Amoy under its aegis. What's more, Heinz beat out other suitors like McCormick
Under the terms of the deal, Heinz will be paying about three times sales and 11 times EBITDA for the business -- a good deal for Danone (which bought the business from Hanson for far less in 1988), but not a terrible price for Heinz, either.
For Heinz, the motivation for the deal is pretty self-evident. The company has been building cash of late and recently reaffirmed its desire to focus on its sauce and condiment business lines.
As for Danone, the deal will allow it to continue refocusing on the water, yogurt, and biscuit businesses. That said, even with this sale, Danone will still be the No. 3 player in European food -- behind Unilever
What's more, when the proceeds of this deal are coupled with the recent sale of Danone's one-third stake in Mahou (Spain's No. 2 brewery) for more than $700 million, you can see why Danone execs are confident that they will be increasing their share repurchases in the second half of the year.
At this point, it would appear that Danone will spend as much as nearly $1 billion in repurchases in the second half, and perhaps more than $1.5 billion for the full year.
While on opposite sides of the globe and opposite sides of this deal, both companies might be worth a further look for more conservative, income-oriented investors. Both companies now seem to be committed to sticking to their knitting and building shareholder value with logical, albeit different, deployments of cash.
Bite into some more Foolish food takes:
- Heinz Pours On the Cash
- M'm! M'm! Better Than Nothing
- Unilever Looks for Growth Leverage
- Danone Looks to Bail Out of Water
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).