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Seagram to Buy Tropicana in Deal Worth $1.2 Billion

March 11, 1988|Associated Press

CHICAGO — Canadian liquor giant Seagram Co. proposed the ultimate in mixed drinks Thursday, announcing it will buy orange juice producer Tropicana Products Inc. for $1.2 billion to expand Seagram's share of the beverage market.

The Canadian liquor-and-beverage giant's acquisition of Tropicana from Beatrice U.S. Food Corp. marks a "diversification and an expansion" of Seagram's product line, Seagram Chairman Edgar M. Bronfman said in a statement.

Securities analysts said the move into the orange juice business was a logical step for Seagram, which has limited growth potential through its liquor products.

The purchase--made through the company's U.S. subsidiary, Joseph E. Seagram & Sons Inc.--will be financed initially with a combination of bank loans and short-term borrowings, Seagram said.

Montreal-based Seagram, best known for its distilled spirits and wines, has in recent years moved into the manufacturing of wine coolers. It sells cocktail mixers such as tonic, seltzer and ginger ale under the Seagram's name.

Seagram is also in the process of acquiring French cognac producer Martell & Co. in a deal valued at $930 million.

"We have already broadened our base with Seagram's (wine) coolers, and Tropicana is another step in this direction," Bronfman said.

Seen as Good Fit

Tropicana, with headquarters in Bradenton, Fla., is a well-known fruit juice and beverage manufacturer and distributor. It had sales of about $750 million in its last fiscal year, which ended Feb. 29, said Marcelline Thomson, a Seagram spokeswoman in New York.

Tropicana is a leading producer of both ready-to-serve orange juice and frozen concentrate.

"It's a good fit," said Robert S. Reitzes, who tracks Seagram for the investment firm Mabon, Nugent & Co. in New York. "It makes sense in their business."

Ian Osler, an analyst with Prudential-Bache Securities in Toronto, agreed, saying orange juice is not that different from Seagram's current businesses.

"They understand the business and it's growing, unlike most of their liquor products," Osler said.

Reitzes said it was possible that Seagram would use the Tropicana name to introduce new products.

Seagram had net income of nearly $423.5 billion on sales of $3.3 billion in the fiscal year ending Jan. 31, 1987, and reported a profit of more than $402.4 million on sales of $2.6 billion for the nine months ending Oct. 31, Thomson said.

Beatrice U.S. Food Corp., based in Chicago, is a division of closely held Beatrice Co., which put itself up for sale last September.

Fullerton-based Hunt-Wesson, which had sales of more than $1 billion last year, is the largest of Beatrice's divisions. The company also owns Swift-Eckrich, a meat processor, and Beatrice Cheese.

Other Potential Bidders

Beatrice Chairman Donald Kelly has acknowledged that he had hoped to sell the entire company, but he was unable to find a buyer at his asking price of $4.5 billion.

Analysts said the large price tag ruled out many large U.S. food companies as prospective buyers, but the decision to sell the divisions independently increases the number of potential bidders.

Analysts said that RJR Nabisco or Pillsbury might be interested in purchasing the Hunt-Wesson division, which makes Hunt's tomato products, Wesson cooking oils, Peter Pan peanut butter and Orville Redenbacher popcorn.

Beatrice spokesman Charles Long said Thursday that the company has retained the brokerage firm of Salomon Bros. to study options for the sale of Hunt-Wesson. Long said a sale of Hunt-Wesson is not expected immediately.

Beatrice U.S. Food Corp.'s predecessor, Beatrice Cos., was taken private in 1986 in a $6.2 billion leveraged buyout led by Kohlberg Kravis Roberts & Co.

A number of Beatrice Cos.' assets, including Avis car rental and International Playtex Inc. personal products, were sold off, and others were spun off as E-II Holdings Inc.

E-II agreed last month to be taken over by American Brands Inc.

THE DISMANTLING OF BEATRICE Beatrice Cos. has agreed to sell its Tropicana fruit juice unit to Seagram Co. for $1.2 billion. The following Beatrice subsidiaries have been sold since the Chicago-based consumer products giant was taken private in a leveraged buyout in 1986. Dollar figures in millions.

Date Unit sold Acquirer Price July '86 Avis car rental Wesray and management $255 Sep. '86 Coca-Cola bottling Coca-Cola 1,000 Dec. '86 Playtex personal products Management 1,250 Dec. '86 Meadow Gold dairy Borden 315 Dec. '86 Webcraft Technologies Management 223 Dec. '86 Americold warehouses Management 480 July '87 Bottled water division Perrier 425 Dec. '87 Chipy, international foods TLC Group and management 985 March '88 E-II Holdings American Brands 1,120 Pending Tropicana Seagram 1,200

Source: Reuters

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