Kellog to acquire Worthington Foods for 1.75 times revenue

Weekly Corporate Growth Report, Oct 11, 1999

The Deal: Kellog Co. has agreed to acquire Worthington Foods for $307 million and the assumption of $40 million in debt. The deal comes five days after Kellog announced that it was selling its Lender's Bagel business to Aurora Foods Inc. for $275 million, 41.0% less than the 1996 purchase price of $466 million. On the news, Worthington arose $8.6875, or 60.0%, to $23.0625/share while Kellog fell 31.25 cents, or 0.8%, to $37.125/share.

Discussion: Worthington specializes in manufacturing and marketing products such as soy-based hamburgers, vegetable burgers, meatless sausage, chicken, corn dogs, and hot dogs. Its brand names include Morningstar Farms, Natural Touch, Worthington, and Loma Linda. The company's largest brand Morningstar Farms commands 50.0% of the market share of meat alternative sales in U.S. supermarkets.

Kellog is the second big food maker to align itself with a natural-foods company in the past week. H.J. Heinz Co. agreed to acquire a 19.5% stake in Hain Food Group Inc., a natural-foods concern. Kellog believes that soy is the next big food product. Unit sales in the total meat alternative category have increased by 33.0% a year in the U.S. for the past five years. Worthington has a research department with a lot of experience working with soy. Its sales are expected to have a 12.0% to 15.0% annual growth rate, which should help Kellog's suffering sales and profit. The acquisition will also expand Kellog's product line at a time when fewer Americans are eating cereal for breakfast.