TreeHouse Foods exploring options that could include sale

Dive Brief:

• TreeHouse Foods is exploring options that could include a sale of the company or a divestiture of a large portion of its meal prep business in an effort to focus on snacks and beverages.
• TreeHouse said the possible options follow a strategic review started earlier this year and “engagement with many of our shareholders.” The company didn’t identify the investors and noted it could decide not to make any changes to its business.
• Jana Partners in February said the company should consider a sale of its business. TreeHouse later added two independent directors to its board as part of an agreement with the activist investor.

Dive Insight:

Despite efforts to overhaul its business under the watch of CPG veteran Steve Oakland, TreeHouse has watched its stock price slide and failed to benefit from the surge in demand for packaged foods during the ongoing pandemic.

TreeHouse, the nation’s largest manufacturer of private-label products thanks to a combination of more than 40 mergers, has spent much of the past several years closing plants, reducing SKUs, cutting jobs and jettisoning units to become a more focused, nimble company. Recently it sold its ready-to-eat cereal business to Post Holdings and purchased a majority stake of Ebro’s Riviana Foods U.S. branded pastas for $242.5 million, expanding its regional and national scope in the category.

But the changes have done little to excite investors, and the company’s earnings announcement on Monday provided a recent look into the challenges TreeHouse is facing and why it may be looking to sell itself. In a separate release, TreeHouse cut its profit forecast for the year and reported third-quarter adjusted earnings that missed analysts’ estimates.

No doubt Jana has been in frequent contact with TreeHouse since news first surfaced earlier this year about its investment in the company, and it likely played a role in today’s announcement. At the time, Jana had taken a 7.5% stake in the private-label food maker, but media reports indicate it has since upped its ownership in TreeHouse to about 9%.

Since news broke of Jana’s involvement with TreeHouse and its push for a sale, the private label company’s shares have fallen following an initial pop. TreeHouse traded at about $36 as of Friday’s close, down from $42.46 on Feb. 9, the day before news of Jana’s involvement was reported. With Jana seeing its initial investment in TreeHouse decline, the activist will likely keep pressure on the private label food maker to make major, substantive changes to its business.

Jana has a long record of agitating for change at companies it considers undervalued, and in many cases it has been successful at triggering a sale. Jana pressured Whole Foods Market to sell itself after it bought a 9% stake in the company; the grocer was subsequently acquired in 2017 by Amazon. It also purchased shares in Pinnacle Foods before it was sold to Conagra Brands.   

It’s unlikely who would want to purchase TreeHouse, but a private-equity firm would be the most likely option. TreeHouse’s roughly $2 billion market capitalization would make it digestible for a lot of buyers. In 2018, Post Holdings created a new private-label brand subsidiary, 8th Avenue Food & Provisions. It later sold 39.5% of the business to private-equity firm Thomas H. Lee Partners.

TreeHouse also indicated it could decide to focus on its faster-growing snacking and beverages business by divesting a “significant portion” of its meal prep operations responsible for dressings, sauces, jellies, pasta and pickles, among other foods.

Snacks and beverages, which includes cookies, frozen waffles, pretzels, snack bars and beverages and drink mixes, generated nearly 38% of the company’s $4.35 billion in sales in 2020. Even though a divestiture of meal prep would create a slimmed down TreeHouse in trendy areas, it would likely deprive the business of key commodity, manufacturing and retail synergies, as well as cash flow, that come with producing a wider array of products.