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Heinz Calls Off Bumble Bee Deal : Pillsbury to Buy Tuna Canner

July 26, 1988|CHRIS KRAUL | San Diego County Business Editor

SAN DIEGO — In a bid to expand its line of food brands, Pillsbury said Monday that it has signed a definitive agreement to buy Bumble Bee Seafoods, the San Diego-based tuna canner whose acquisition by H. J. Heinz was called off Friday in the face of opposition by the Justice Department.

The price of the all-cash acquisition was not disclosed, although analyst Lawrence Adelman of Dean Witter Reynolds in New York pegged the purchase price at about $200 million. Heinz had offered $225 million for Bumble Bee, according to Justice Department sources.

To help pay for the acquisition, Pillsbury also announced plans to sell its Minneapolis-based grain merchandising division. Other sources of internal funds will cover "a major portion" of the Bumble Bee acquisition costs, Pillsbury said in a prepared statement.

The seller is a group of four Bumble Bee executives and financial partner First Boston Corp., which acquired the tuna canner in 1985 from Castle & Cooke in a $73-million buyout. None of the four executives, Patrick Rose, James McCarthy, Ernest Peterson and Kenneth Branson, was available for comment on the sale.

Current Bumble Bee management will stay on board to operate Bumble Bee as an independent subsidiary, Pillsbury said. "One of the things we felt strongly about was the strength of their management team," a Pillsbury spokesman said Monday.

Heinz, whose Star-Kist brand dominates the U.S. canned tuna market with a 36.3% share, proposed the merger with Bumble Bee, which controls 17% of the market, in February. But in May, the Justice Department said it would oppose the merger on antitrust grounds, saying it would concentrate too much pricing power at Heinz. On Friday, Heinz officially withdrew its purchase offer.

Pillsbury currently sells frozen fish but no canned tuna, so its offer for Bumble Bee seems safe from antitrust scrutiny. "My personal opinion is that tuna buyers are better off with someone like Pillsbury buying (Bumble Bee)," said Justice Department attorney John Poole, who was involved in the department's review of the Heinz proposal.

Bumble Bee's 1987 sales were $265 million, Pillsbury spokesman Lawrence Haeg said Monday. Bumble Bee employs 2,200 at its canning facility in Mayaguez, Puerto Rico, and 100 at its corporate headquarters in San Diego. The company also sells canned salmon and oysters.

Analysts warned that the tuna business has been tough going for everyone except Heinz's Star-Kist over the past few years with competition intensifying due to the growth of low-cost canning operations in the Far East, particularly Thailand.

"I'm somewhat skeptical of the move. The branded side is heavily dominated by Star-Kist while the low end is dominated by the Far East producers," said Adelman of Dean Witter Reynolds. "If you haven't been Heinz, the tuna business has been a difficult place to grow earnings over the past several years."

Adelman added that Ralston Purina's Chicken-of-the-Sea brand canned tuna, the nation's second-largest selling label, is "not doing well if you come from a growth orientation."

While cautioning that canned tuna is a "tough business," analyst Marvin B. Roffman with Janney Montgomery Scott in Philadelphia said the Bumble Bee brand is a "good strategic fit" with Pillsbury's other food brands which include its flour, Haagen Dazs ice cream, Green Giant vegetables, Van de Kamp's entrees, Burger King and Jeno's pizza, among others.

The Justice Department's decision against Heinz came after the American Tunaboat Assn., a San Diego-based association of 71 tuna boat owners, formally protested the Heinz proposal. A similar protest was lodged by the Western Fish Boat Owners, another San Diego-based trade group.

ATA President August Felando said Monday that his member boat owners, who catch about one-third of the 44 million 48-can cases consumed each year in the U.S., will probably support the Pillsbury deal. "It's good for the consumer and a healthy factor for the industry," Felando said.

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