CHICAGO — Hormel Foods Corp. is closing in on a deal to acquire the Planters snack brand from Kraft Heinz Co. for approximately $3 billion, according to The Wall Street Journal.
Citing people familiar with the matter, the WSJ said a transaction could be announced as soon as next week.
Planters primarily sells nuts and snack mixes, but also sells Cheez Balls and Cheez Curls. The brand’s mascot, Mr. Peanut, has been around for more than 100 years.
Austin, Minn.-based Hormel has been expanding its presence in the nut category over the past decade. In 2013, the company bought the Skippy peanut butter business from Unilever for approximately $700 million. Three years later, in 2016, the company acquired Justin’s Nut Butter for $286 million. The addition of Planters would give it an even bigger presence in the protein space.
Robert Moskow, an analyst at New York-based Credit Suisse, said the research firm views the potential transaction as “attractive financially for Hormel, but risky operationally.”
“On the positive side, it provides significant accretion to EBIT margins and EPS (we estimate 70 bps and 10% to 15%, respectively), it utilizes the company’s underleveraged balance sheet (leverage would go from -0.3x to 1.7x), and it creates some synergies with the Grocery Division’s Skippy brand and potentially even the International Division in China,” Mr. Moskow wrote in a Feb. 2 research note. “However, the Planters business had been in structural decline for several years prior to the pandemic owing to market share losses to private label and below-average product quality. Just about every grocer now offers higher quality nuts in the produce aisle than what Planters has to offer. Planters’ market share has declined 600 bps since 2020, and private label has gained 1,000. We think Hormel will need to make a bigger investment than it expects into the business to stabilize it.”
Meanwhile, for Kraft Heinz, the decision to explore a divestiture of the Planters business “makes good sense strategically,” Mr. Moskow said.
“Management tried just about everything you could imagine to re-engage consumers with the Planters brand, including the infamous Super Bowl advertisement in 2020 that sent the Nutmobile over a cliff and ‘killed’ Mr. Peanut,” he said. “Our view is that Kraft Heinz competes most effectively in categories where consumers willingly pay a premium for heavily processed foods that provide convenience and taste (i.e., Philadelphia cream cheese, Lunchables, Kraft Mac & Cheese). In contrast, it performs poorly in commoditized categories where it is difficult to differentiate versus private label. The potential downside to this transaction is, similar to the natural cheese divestiture, a significant degree of EPS dilution (we estimate 3%).”