Source: LOHAS Weekly Newsletter
Published: Monday, November 01, 1999

PITTSBURGH—H.J. Heinz Co.’s (HNZ) late-September acquisition of 19.5% of Hain Food Group (HAIN) will not only give HAIN a projected $40 million in yearly international sales growth, it also allows HAIN to go shopping for acquisitions of its own, HAIN CEO Irwin Simon says.

HNZ paid about $100 million for 3.5 million shares of HAIN. HAIN also acquired the trademark for Earth’s Best baby foods, a HNZ brand that HAIN has been marketing and distributing for a year. HAIN also makes and sells some of HNZ’s Weight Watchers products.

HNZ, which had $9.3 billion in sales in FY99, saw only a 1% increase in revenues from FY98. By acquiring HAIN, which is expected to post $300 million in sales this year, HNZ moves into the booming natural foods industry, which industry observers estimate is growing 15% to 18% annually.

HNZ has an 18-month standstill agreement with HAIN, but Simon says he’s not looking to sell any more of his company to HNZ or anyone else.

Simon says that as a result of the cash infusion from HNZ, HAIN is currently considering three or four different acquisitions in the next year. Companies HAIN is looking at have revenues in the $50 million to $150 million range and all are natural-foods manufacturers. Simon says HAIN won’t move out of its natural foods niche.

In addition, HAIN expects to pick up about 10% of HNZ’s $4 billion in international sales. This is important, Simon says, as natural foods markets such as Whole Foods Market (WFMI) and Wild Oats Markets (OATS) open internationally. “It’s a strategic partnership with a major company that allows us to move into the European market,” Simon says.

HAIN also expects to lower costs by using HNZ’s procurement infrastructure. Simon says HAIN will move into some of HNZ’s manufacturing plants.

Analyst Carole Buyers at Tucker Cleary in Denver says she sees the HNZ-HAIN move as “positive for the entire group.” “For Heinz, it’s relatively inexpensive growth—it offers a floor. Hain’s strategy is to leverage distribution and some of its processing and get international exposure.”

Citing the recent Worthington Foods (WFDS) acquisition by Kellogg (K), Buyers says that “conventional food guys are taking a stab at getting into this business.”

For now, Buyers and Berry Summerour, an analyst with Stephens Inc. in Little Rock, AR, think natural products industry M&A action will center around food companies rather than supplements companies. “The food business is more about brands and shelf space in supermarkets. People are still trying to figure out supplements companies. I think it’s going to happen, but sentiment is still negative around that business,” Buyers says.