United Natural to acquire Tony's Fine Foods for $195 million

by Eric Schroeder
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PROVIDENCE, R.I. — United Natural Foods, Inc. (U.N.F.I.), which distributes more than 65,000 products to more than 31,000 customer locations throughout the United States and Canada, has entered a definitive agreement to acquire Tony’s Fine Foods for approximately $195.3 million. Founded in 1934 and based in West Sacramento, Calif., Tony’s Fine Foods distributes perishable food products, including an array of specialty protein, cheese, deli, food service and bakery goods throughout the Western United States, as well as Alaska and Hawaii. Tony’s products are sold primarily to retail and specialty grocers, food service customers and other distribution companies.

The transaction will consist of approximately $187.8 million in cash and approximately 112,000 shares of the company’s common stock. Tony’s shareholders are expected to use a portion of the proceeds to pay off all of its existing indebtedness as of the closing. U.N.F.I. expects to finance the cash portion of the purchase price with a combination of available cash and borrowings under its revolving credit facility, which it amended May 21 to, among other things, increase the aggregate amount of availability by $100 million. A portion of the borrowings under the revolving credit facility is expected to be refinanced into an approximately $150 million real-estate backed term loan facility that U.N.F.I. anticipates it will enter into in the fourth quarter of fiscal 2014 or first quarter of fiscal 2015.

“For the last several years, we’ve talked a lot about building our platform for retail products sold around the perimeter of the store, products that include natural proteins, specialty cheese, bakery and food service,” Steve Spinner, president and chief executive officer of U.N.F.I., said during a May 22 conference call to discuss the transaction. “Today, with the announcement of the acquisition of Tony’s Fine Foods, we now have a national platform for growth into these really fast growing product categories. With consumers’ migration toward natural proteins and healthier eating, the Tony’s acquisition is very, very strategic for U.N.F.I. Tony’s Fine Foods, now in its third generation of leadership, will continue to guide U.N.F.I. as we implement their highly successful platform throughout U.N.F.I.’s distribution network. With over $700 million in annual revenue and 700 associates, the Tony’s platform is scalable and rich in creative, savvy and unique offerings.

“As many of you who have followed U.N.F.I. for some time know, culture is extremely important to us. U.N.F.I.’s core beliefs dictate who we are and how we go to market. At Tony’s, their core values very closely align to ours. Integrity, being good stewards of the earth and always doing what’s right are at the forefront of their company, as well. I look forward to sharing more about this exciting acquisition, including the long-term strategy for growth, as well as Tony’s contribution to our long-term earnings at our June call.”

For its fiscal year ended Sept. 30, 2013, Tony’s generated approximately $714 million in net sales. Upon closing, Tony’s will be operated as a wholly-owned subsidiary of U.N.F.I. The transaction is expected to be accretive to the company’s earnings in its fiscal year 2015.

“I think that, at least in the near term, and by near term I mean the next couple of years, we see this as a very unique and differentiated product offering,” Mr. Spinner said. “We are going to run these businesses separately. However, there are some things that will come together on a net-national basis. Those things that would obviously make sense, whether it be payroll, benefits, we’ll certainly provide them with a tremendous amount of access to our inbound freight, supply chain, those things that U.N.F.I. does really, really well. The vision right now is that they will operate as a separate business, very similar to some of our other businesses.”

In a statement accompanying the announcement of the transaction, Karl Berger, co-president and third generation operator of Tony’s Fine Foods, said, “Tony’s has a consistent track record of providing quality products and innovative logistical solutions to a wide variety of food industry establishments with a commitment to superior customer service. We are thrilled to become part of U.N.F.I., one of the leading natural, organic and specialty distributors in the U.S. and Canada, while maintaining our West coast distribution and logistics network. We believe together, Tony’s and U.N.F.I. will deepen our relationships with existing customers and broaden our reach to new customers across all of our markets.”
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