B&G Foods Secretive Acquisition Of TrueNorth Brand

| About: B&G Foods, (BGS)

When I read that B&G Foods (NYSE:BGS) announced it had acquired TrueNorth Brand from privately held DeMet's Candy Company, my immediate reaction was "Great! Here comes another dividend increase." That may still turn out to be the case, although much less is known about this recent acquisition than the prior two acquisitions by B&G, each of which triggered a dividend increase. Those two earlier acquisitions were the Culver Specialty Brands (or CSB) from Unilever (NYSE:UN) in October of 2011 and the New York Style® and Old London® brands from Chipita America, Inc. in September of 2012.

When announcing the CSB acquisition for $325 million in cash, the company also announced that it would host a conference call to discuss the acquisition. The announcement also included the following statement by CEO David Wenner:

We expect the acquisition to enhance the already high margin structure of B&G Foods and to be immediately accretive to our earnings per share and free cash flow.

The press release further revealed that CSB:

...generated approximately $90 million of sales in the twelve months ended September 30, 2011. B&G Foods projects that the brands will generate EBITDA of $35 to $38 million during fiscal 2012.

The acquisition from Chipita America "for approximately $62.5 million in cash" included similar information:

B&G Foods projects that the brands will generate net sales of approximately $45 to $50 million and EBITDA of approximately $8 to $9 million in 2013.

Surprisingly, no financial information at all was given about the TrueNorth acquisitions. Instead, the announcement stated:

Terms of the transaction were not disclosed.

And, it's not just that the terms of the transaction were not disclosed, there was no mention about how much revenue or EBITDA TrueNorth generates. Furthermore, the DeMet's web site did not disclose terms of the transaction either and had little additional information.

The Dividend

I first recommended B&G on this web site nearly 2 years ago when the shares were trading in the $17.50's and its $0.84 annual dividend yielded 4.8%. Since then the dividend has been increased three times to $1.16, although with the shares closing last week at $30.53, the yield has declined 3.8%.

At the time, I noted that B&G's Cream of Wheat and Ortega brands competed for supermarket shelf space with PepsiCo's (NYSE:PEP) Quaker and Tostito's brands. However, although I held PepsiCo at the time, it was not recommended because its dividend yield was just under 3%. Since then, PepsiCo's dividend of $2.06 has increased to $2.27 and its yield has declined to 2.7%. Now, with the dividend yields much closer, I would be more inclined to accumulate PepsiCo and simply hold B&G.

PepsiCo Ties

Interestingly, while searching for additional information about the TrueNorth acquisition, I found out that TrueNorth had been acquired by DeMet's from PepsiCo in late 2010 (although the deal actually closed in early 2011). When that transaction was announced, terms were not disclosed either. A report at the time noted that PepsiCo's Frito Lay launched the TrueNorth products in late 2007:

Frito Lay launched TrueNorth -- a premium brand of nuts and products made with nuts -- in late 2007, looking to attract health-conscious consumers.

PepsiCo increasingly continues to focus on offering healthier or more "natural" formulations of Frito Lay snacks and other products. However, TrueNorth and another brand, Flat Earth, proved to be "failures" in comparison with the scope and success of other "adjacency" brands such as Stacy's pita chips and Sabra hummus dips, PepsiCo Americas Foods CEO John Compton confirmed during November's Morgan Stanley Consumer & Retail Conference.

Why bring all this up? B&G's acquisition of TrueNorth fits in with its recent acquisition from Chipita. In the TrueNorth press release, Wenner is quoted as follows:

We are delighted to welcome TrueNorth to the B&G Foods family. TrueNorth, which offers a 100% natural snacking experience, is the first addition to our snacks portfolio since we entered the category last October by acquiring the New York Style, Old London, JJ Flats and Devonsheer brands.

And, those Chipita brands are going after additional shelf space challenges to PepsiCo. From the earlier press release:

Since 1985, New York Style has been making foods for snacking and entertaining, including Original Bagel Crisps, Mini Bagel Crisps, Pita Chips and Panetini Italian Toast.

So, why have two companies decided to get rid of the TrueNorth brands in a three year period?


That PepsiCo chose to divest TrueNorth after only three years can be easily explained by the fact that PepsiCo prefers brands with very large sales. In fact, the company proclaims:

PepsiCo offers the world's largest portfolio of billion-dollar food and beverage brands, including 22 different product lines that each generate more than $1 billion in annual retail sales.

However, the divestiture by DeMet's in less than two and a half years is a bit more puzzling. Will B&G be more successful? It's impossible to know at this time. The acquisition from Chipita included a manufacturing facility and a sales force. Maybe lower expectations or leveraging that snack food sales organization will allow for greater success than the previous two owners of the TrueNorth brand were able to accomplish.

I have been a fan of Wenner for quite some time, first investing in B&G more than five years ago. His ability to return long-term value to shareholders has been consistent and his openness during interviews and conference calls was refreshing. That openness was missing from the press release about the latest acquisition.

In a recent article I also noted that:

Debt to EBITDA leverage declined slightly to 3.5x, positioning B&G to make its next acquisition.

I just never expected that investors would be so ill-informed about that acquisition. I remain long B&G, and will continue to re-invest dividends.

[I should also point out that my most recent acquisition of additional shares of BGS was made on October 15th, 2012 at $28.00/share, when I also simultaneously sold May $30 covered calls. It was a pure income play, and the call premium of $1.35, along with the potential $2 capital gain, "ensured" that I would get the equivalent of more than 3 years worth of dividends should the shares be called away. With the shares trading slightly above the strike price and the expiration of those calls at the end of this week, I may need to decide whether to let the shares be assigned, repurchase the calls or roll those calls forward to August or November expirations.]

Disclosure: I am long BGS, PEP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have near term covered calls sold against a portion of my BGS position.

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