YoCrunch yogurt affiliate acquiring yogurt unit of CoolBrands

by Josh Sosland
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GREENWICH, CONN. — Healthy Foods Holdings, an affiliate of private-equity group Catterton Partners Management Co., has agreed to acquire CoolBrands Dairy, Inc., the yogurt subsidiary of CoolBrands International, Inc.

CoolBrands Dairy produces yogurt at a plant in North Lawrence, N.Y. The yogurt is marketed under the Breyers and Creme Savers brands.

The Breyers yogurt business would be Catterton’s second venture in the yogurt sector. The group in September 2005 bought the Yofarm Co., which manufactures and markets the YoCrunch yogurt brand. Catterton’s plans to acquire the yogurt business followed by less than a month the group’s acquisition of Van’s International Foods, Inc., the maker and marketer of Van’s Waffles, a natural/organic waffle maker.

"We are delighted to have the opportunity to build the Breyers brand by adding innovative new products and expanding retail distribution in all major channels," said Chuck Marcy, chief executive officer of Healthy Food Holdings. "Together with our existing YoCrunch product line, Healthy Food Holdings will be able to offer customers differentiated yogurt products that are fast becoming the go-to favorites for consumers seeking healthier snack alternatives that don't compromise on taste."

CoolBrands, which paid Kraft Foods Inc. $59 million for the yogurt business in early 2005, said it will be paid $45 million in cash for the business (subject to inventory and slotting fee adjustments) and also will receive a $5 million subordinated promissory note (payable two years after closing at a 12.9% annual rate of interest) and a warrant to purchase 2 million shares of common stock of Yogurt Holdings II at a price of $1.25 per share. No further details on the warrants were provided. An early February closing is anticipated, CoolBrands said.

In the period CoolBrands has owned the Breyers yogurt business, the yogurt market has grown considerably, but Breyers’ share has not. According to Information Resources, Inc. data published in the 2006 edition of Corporate Profiles, U.S. yogurt sales grew 6% in the 52 weeks ended Oct. 8 with gains of 7% by Yoplait, 4% by Dannon and 18% by Stonyfield Farm, the top three companies. Fourth ranking CoolBrands sales fell 5%. YoCrunch sales were up 6% during this period. I.R.I. ranked YoCrunch sixth, behind Wells’ Dairy.

Based on the October I.R.I. data, Yofarm and Breyers if combined would be the nation’s fourth largest yogurt company (the same position held by Breyers), with $145 million in retail sales, versus $218 million for Stonyfield Farm (largely owned by Groupe Danone), $923 million for Dannon and $1,108 million at Yoplait.

According to CoolBrands’ most recent financial filings, the Breyers’ yogurt business was small as a percentage of total CoolBrands sales. In the year ended Aug. 31 (CoolBrands has not yet released financial data for fiscal 2006), yogurt sales totaled $44,007,000 (not comparable to I.R.I. data), or 12% of the company’s sales.

But as a percentage of gross profit, the yogurt business was CoolBrands’ largest by a wide margin. At $7,369,000, the segment generated 71% more profit than the second most profitable division, Dairy Components and Ingredients, at $4,287,000. Other profitable divisions in fiscal 2005 were Foodservice, $3,626,000; and Franchising and Licensing, $3,224,000. The company’s principal Frozen Dessert business (fiscal 2005 sales of $271 million) sustained a loss of $15,488,000 in fiscal 2005.

The Franchising segment was sold in December 2005, and the Dairy Components and Ingredients business was sold in late 2006.

CoolBrands’ overall business has struggled since 2004 when the company lost a licensing agreement with Weight Watchers International for Weight Watchers Smart Ones and the death a few months later of the company’s co-chairman and co-chief executive officer Richard E. Smith.

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