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Dial May Sell Lagging Canned-Meats Unit

Consumer goods: Armour could bring in $350 million, for the company to reinvest or be bought, experts say.

May 29, 2000|From Bloomberg News

SCOTTSDALE, Ariz. — Dial Corp., maker of its namesake soap and Purex laundry detergent, might sell its Armour canned-meat unit, whose lagging results have hurt the company's shares, analysts and investors said.

Armour, the top-selling U.S. brand of Vienna sausages, had an estimated $250 million in sales last year. Dial warned in March that first-half earnings will fall in part because of declining Armour sales.

The food business generated 17% of Dial's U.S. sales last year and doesn't fit with Dial's main business of selling soap, detergent and air fresheners, analysts said. Dial's total sales last year were $1.7 billion.

An Armour sale could generate as much as $350 million, which could be reinvested in faster-growing personal-care product units or make Dial more attractive to be sold to a personal-care company, they said.

"They need to just sell it," said Robert Izmirlian, an analyst with Standard & Poor's Corp., who rates Dial as a "hold." "It doesn't mesh with anything they do. There would be greater synergies for a food business to run it than Dial."

Possible suitors for the unit could include Hormel Foods Corp. and International Home Foods Inc., which are competitors in selling canned meats, or ConAgra Inc., which sells Armour meats that aren't canned, analysts said.

Armour's sales of canned chili, beef stew and other products have been falling. Scottsdale, Ariz.-based Dial said consumers stocked up last year on canned meats because they were worried about the Year 2000 computer bug, then cut back when no problems appeared.

Dial's shares, which traded as high as $38.38 last June, have dropped 42% this year. They fell 38 cents to close at $14 on the New York Stock Exchange on Friday.

The biggest obstacle to a sale is that Dial would have to pay a large tax bill on the sale of the unit, which includes a factory in Fort Madison, Iowa, with more than 400 employees, analysts and investors said.

Most of Armour's assets have been depreciated for tax purposes, so a sale price would be entirely subjected to taxes, analysts said.

Dial officials declined to comment.

"The issue isn't whether Armour fits," said Richard Rosen, portfolio manager with J&W Seligman, Dial's largest shareholder with 5.1 million shares. "Clearly, it doesn't fit. The issue is whether it would be an economic transaction, as Armour has a low tax-cost basis."

Because of the tax bill, Dial is likely to sell Armour only if it has a need to finance an acquisition in its primary businesses, he said.

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