Snack food giant Borden is biting into the lucrative California munchies market by purchasing Laura Scudder's, an Anaheim firm best known for its potato chips and natural peanut butter, for an estimated $100 million.
The acquisition of Scudder's, announced Tuesday, gives Borden an inroad into California--the nation's major snack food market and the main geographic void in Borden's nationwide network of regional snack makers.
Although Borden spokesman Nicholas R. Iammartino refused to disclose the full terms of the sale, he said Tuesday that it was a cash deal valued at less than $125 million.
Food industry analyst William Maguire of Merrill Lynch Research in New York estimated Scudder's 1987 sales at $135 million to $140 million and said Borden probably paid between $90 million and $100 million for the California snack firm.
Joseph Halligan, Scudder's president and chief executive, called the sale "a very positive transaction . . . certainly not a distress sale." Halligan said Scudder's generated 1986 sales of about $125 million.
In the past 13 months, Borden also purchased Chicago-based Jays Foods and the Snacktime Co. of Indianapolis, increasing its snack food network to 10 regional markets operating in 46 states.
"This gives us California, where we had not been represented at all, and that's obviously the market we want to be in," Borden's Iammartino said.
New York-based Borden started building its regional network of snack food companies in 1964 with the purchase of Wise Foods of Atlanta, which distributes from Maine to Florida. Borden's regional companies manufacture and market their own products, some of which are distributed nationally through the network.
"We do think it's important to keep the regional brands," Iammartino said. "One thing we've found is that the public's taste for potato chips is different in different parts of the country. Each company has its own recipe for potato chips, for the chips that go over best in their own region."
Borden's plan has won it an estimated 17% to 18% of the highly competitive U.S. snack food market, Maguire said, ranking it second behind giant Frito-Lay Inc., the snack division of PepsiCo. Maguire estimated Borden's U.S. annual sales at $700 million to $725 million and Frito-Lay's at $2 billion.
In early years, potato chips were dispensed by the pound from glass jars that rested on grocery store counters. Stale or broken chips were a common problem, Iammartino said.
In 1926, Laura Scudder decided to market a better chip in a better fashion. The first Laura Scudder's potato chip was fried in Monterey Park on the day after Thanksgiving 61 years ago. The crisps were wrapped in wax paper, which was ironed around the edges to form bags, and peddled to local groceries from the back of the family car.
By 1930, Scudder was making peanut butter, and her company has continued to grow, branching out into corn and tortilla chips, cheese puffs, popcorn, nuts, pretzels, pork rinds and dip mixes.
Although Laura Scudder sold her firm to Signal Oil & Gas of Signal Hill in 1957, she continued to run its operations until her death in 1959. In 1962, Signal sold the snack firm to Pet Milk Co. Pet, which was later acquired by IC Industries of Chicago, sold Scudder's to a group of private investors for a reported $28 million in 1983.
Borden completed its deal on Monday, making Scudder's the third regional snack firm it has purchased in the past 13 months. Borden stock closed at $58.25 a share on Tuesday, up $1.375 in trading on the New York Stock Exchange.
Halligan said Scudder's is the second-largest snack food company in the California-Arizona-Nevada market, ranking it behind Frito-Lay. The company operates plants in Anaheim and Tracy, Calif., and controls "a high-teens market share" in the state, analyst Maguire said .
"Whether that's No. 1 or No. 2 share in California, I don't know," Maguire said. The acquisition will benefit both Borden and Scudder's, he said, because the California firm is "a very high-quality operator" and Borden is "a very good owner."
"They (Borden) let regional brands stay regional and apply national marketing to them," Maguire said. "Marketing costs come down, but they don't screw up management."
Iammartino said that immediate plans for Scudder's are simply "business as is."