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Kellogg Agrees to Buy Veggie-Burger Maker

Food: In an effort to attract health-conscious consumers, cereal maker plans to pay $307 million for Worthington.

October 02, 1999|From Times Wire Services

Less than a week after unloading its frozen-bagel division, Kellogg Co. said Friday that it's getting into the vegetarian-burger business, with hopes of broadening its appeal to health-conscious consumers.

The world's largest cereal maker, which has suffered in recent years with sagging sales and profit, agreed to acquire Worthington Foods Inc. for $307 million. Worthington Foods specializes in manufacturing and marketing products, including veggie burgers and meatless sausage, chicken and hot dog products. Its brand names include Morningstar Farms, Natural Touch, Worthington and Loma Linda.

Since taking the helm of Kellogg in April, Chief Executive Carlos Gutierrez has stressed the need for the company to expand its product line, especially because fewer Americans are eating cereal for breakfast.

On Friday, he told analysts that Kellogg has the marketing expertise to increase the sales of Worthington's existing product lines, and perhaps develop new ones.

"Their research department has a lot of experience working with soy . . . and we are looking at different products with soy," Gutierrez said. "This will give us a bigger head start once soy takes off, which we believe is the next big hot food product."

A Worthington representative did not immediately return phone calls Friday afternoon.

News of the acquisition sent Worthington's shares surging 60%, to close up $8.69 at $23.06 on Nasdaq. Kellogg slipped 31 cents to close at $37.13 on the New York Stock Exchange.

The deal comes five days after Kellogg announced it was selling its struggling Lender's Bagel business to Aurora Foods Inc. for $275 million, 41% less than the 1996 purchase price of $466 million.

"Their past management bought Lender's, which was yesterday's product," Prudential Securities analyst John McMillin said. "Kellogg's new management is trying to buy tomorrow's products, which they believe will be healthier foods."

Worthington's sales are expected to hit $175 million this year, up more than 20% from 1998, while operating profit should top $18 million, Gutierrez said. Its sales are expected to have a "conservative" annual growth rate of 12% to 15%.

Battle Creek, Mich.-based Kellogg will pay $24 for each of Worthington's approximately 12.8 million outstanding shares, or about $307 million, and will assume about $40 million in Worthington debt.

Worthington employs 650 hourly and salaried people at its Worthington, Ohio, headquarters and two plants.

A Kellogg spokesman said no immediate job cuts are planned.

Worthington's chief executive, Dale Twomley, who had been considering retirement, will remain in place at least one year after the acquisition, which is expected to close by the end of the year.

In an attempt to cut costs and turn around its business, Kellogg has gone through significant restructuring recently, including slashing jobs and closing its historic Battle Creek cereal plant.

Kellogg expects the deal's impact will be offset in 2000 by the intended sale of Lender's but will begin adding to the cereal maker's profit the following year, Gutierrez said.

Associated Press and Reuters were used in compiling this report.

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