Quaker Oats, already involved in a messy takeover struggle for the maker of Gaines Burgers, disclosed Wednesday that it owns a nearly 5% stake in Gerber Products, the nation's largest baby food company.
Quaker Oats said that it acquired the Gerber shares last spring only as an investment, but the disclosure quickly prompted speculation that the food industry giant might be considering a bid for Gerber.
Gerber's shares soared $5.875 in heavy trading on Wednesday, closing at $52 on the New York Stock Exchange. Quaker shares closed at $76.125, up 62.5 cents on the Big Board.
Revealed in Annual Report
Quaker revealed its stake in Gerber in its annual report, which was distributed to Quaker directors on Wednesday. Quaker said it paid $47.4 million, or $48.125 a share, for 985,000 shares of Gerber. Quaker spokesman Ronald Bottrell said the Chicago-based company purchased the 4.8% stake "because it is in our basic food industry and because we have long admired the company."
Leonard Griehs, a Gerber spokesman, said of Quaker's move that "we have been aware of this position and have no reason not to believe their statement that it is for investment purposes."
Gerber, based in Fremont, Mich., earned $45.5 million on sales of $967.9 million for the fiscal year that ended March 31. About 60% of sales came from baby food. The company also has interests in children's clothing, furniture and insurance.
Roger Spencer, a food industry analyst with Paine Webber, noted that Quaker Oats is one of the more aggressive companies in an industry that has undergone considerable consolidation during the past few years. Quaker acquired Stokely Van Camp in 1983, and in June, Quaker paid $275 million for Golden Grain Macaroni Co. It is involved with two New York investment firms in an effort to take over Anderson, Clayton Co., the Houston-based maker of Gaines Burgers.
Spencer said that with the exception of Anderson, Clayton, all Quaker acquisitions have been friendly. "In my opinion, they would not do anything unfriendly with Gerber," he said.
Price Increase Expected
Alan S. Greditor, a food industry analyst with Drexel Burnham Lambert in New York, said Gerber shares are undervalued. If Gerber's various businesses are valued separately, the company is worth more than $73 a share. However, some analysts said Gerber's breakup value is no more than $63 a share.
Greditor also questioned whether Quaker acquired Gerber shares only as an investment. "I believe right now it's an investment," he said. "On the other hand, it would be unusual to make an investment of this size just for investment purposes."
Anyone seeking to take over Gerber would have to overcome many obstacles, said John McMillin, a food industry analyst with Prudential Bache Securities in New York. McMillin said that Gerber has many takeover defenses and that nearly 15% of the company is owned by insiders, including Daniel F. Gerber, who is the son of the company's founder, and Gerber's brother-in-law, Herbert M. Cummings.