Boulder Brands and its line of Udi’s gluten-free breads, Evol natural frozen foods and Earth Balance spreads has landed in the hands of the multibillion-dollar company behind Birds Eye frozen vegetables, Duncan Hines cake mixes and Vlasic pickles.
Parsippany, N.J.-based Pinnacle Foods is snapping up Boulder Brands for $975 million, which includes $265 million of debt, the companies announced Tuesday.
The all-cash offer, which will be submitted formally in the next 10 days, values shares in Boulder Brands at about $11 each. The transaction could close in the first quarter of next year.
Boulder Brands shares got a jolt from the deal, climbing 85 cents, or 8.4 percent, to close at $10.92. Pinnacle’s shares dipped 63 cents, or 1.46 percent, to $42.57 with trading volume that was four times the average.
Investors’ concerns likely stem from how Pinnacle will approach decelerating sales of Smart Balance and Earth Balance spreads and the incorporation of a company that logs half of its sales from gluten-free products, said Sean Naughton, a senior research analyst for Piper Jaffray.
The gluten-free industry is growing by double-digits and is expected to top $10 billion in sales, according to estimates from Mintel and the Nutrition Business Journal.
In Udi’s and Glutino, Pinnacle acquired the gluten-free market leaders, but that sector has become increasingly competitive, Naughton said.
It’s a health-and-wellness play for Pinnacle, which owns a variety of brands across frozen, refrigerated and packaged foods grocery store aisles. In addition to Birds Eye, Pinnacle’s portfolio includes such brands as C&W, Mrs. Paul’s, Hungry-Man, Log Cabin and Lender’s.
The Pinnacle deal follows a period of turbulence for Boulder Brands that included the resignation of its CEO, layoffs and weak earnings.
Boulder Brands
lost $127.1 million in 2014 and posted $516.6 million in revenue. In August, the Boulder-based company enlisted William Blair & Co. to review its strategic options, including a sale and a thinning of product lines.
Pinnacle CEO Bob Gamgort on Tuesday said he plans to keep Boulder Brands in Boulder and expects the headquarters to prove to be “an important better-for-you business hub.”
Boulder, he said during a conference call with analysts, is a “hotbed of on-trend food startups.”
The deal bolsters Pinnacle’s presence in natural grocery stores and provides it a means of tapping into a younger customer base, Gamgort said.
Pinnacle officials said they expect cost savings to occur in areas that include administrative and product costs. Gamgort said all of the company’s operations — including manufacturing — will be reviewed.
“I think that we have a really nice situation here, where we’re going to be able to get the overhead costs more in line with the growth targets of this business, but not changing the culture or the DNA or the soul of this business at all,” Gamgort said.
On the spreads business, Gamgort said he sees an opportunity to “reinvigorate” the struggling Smart Balance brand and grow that segment by reducing the number of SKUs in the category.
Gamgort lauded the upside of plugging brands such as Evol and Udi’s into Pinnacle’s expansive distribution and retail network.
Still, as was illustrated by the analyst call, Pinnacle may have some perception issues to overcome.
“Right now, it’s about one rung above straw that you might feed to your cattle,” Buckingham Research analyst Eric Larson said of gluten-free products as he quizzed Pinnacle executives about innovation.
But Gamgort said the taste of meat alternatives and gluten-free items have come a long way in recent years, and parallels exist between this deal and Pinnacle’s purchase of meat-substitute maker Gardein.
“This is not a fad,” he said. “This is a sustainable trend that’s driven by a real consumer need.”
Alicia Wallace: 303-954-1939, awallace@denverpost.com or @aliciawallace
