Lamb Weston Holdings, the US-based French fries supplier that has come on the radar of activist investor Jana Partners, has reportedly become a takeover target for Post Holdings.
Post Holdings has hired investment bankers to explore ‘a possible transaction’, two unnamed sources familiar with the proceedings were quoted by Reuters as saying on Friday (13 December).
It would not be the first time that Post Holdings, which owns brands such as Simply Potatoes and Bob Evans Farms, has expressed an interest in acquiring New York-listed Lamb Weston, a branded and private-label supplier of frozen potato products.
A report emerged from The Wall Street Journal in 2016 that Post Holdings was reputedly eyeing up Lamb Weston when it was still part of what was then ConAgra Foods. However, those talks eventually stalled, sources for the WSJ said at the time.
The French fries maker was then spun-off that year into a separate business, when Tom Werner was appointed president and CEO of the French fries maker. He still heads up Lamb Weston today.
Werner is now also dealing with pressure from Jana Partners, while Lamb Weston is facing lawsuits in the US for alleged price-fixing, along with peers McCain Foods, JR Simplot and Cavendish Farms.
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By GlobalDataJana Partners revealed in October that it had acquired a 5% shareholding in Lamb Weston for $336m. The potato products supplier’s shares have fallen almost 26% this year amid a myriad of issues with the business, not least softness in demand in both retail and foodservice, where McDonald’s is the company’s largest customer.
Lamb Weston has also incurred a $71m write-down on potato inventories, along with a host of profit warnings. It has also faced disruption from implementing a new ERP system and has closed its Connell, Washington, facility with the loss of hundreds of jobs.
Jana Partners said in October, as it announced the share interest, that Lamb Weston’s shares were “undervalued and represent an attractive investment opportunity”, citing the “litany of self-inflicted missteps that have led to underperformance for shareholders”.
The investor also said it would pursue an “initiation of a review of strategic alternatives, particularly given the history of interest in the issuer [Lamb Weston] and the issuer’s poor performance for shareholders”.
Reuters unnamed sources said on Friday that ‘there would be considerable synergies with Lamb Weston’ if Post Holdings was to acquire the business.
Just Food has asked Post Holdings and Lamb Weston for comment on the takeover speculation.
“Stretch financially”
Alexia Howard, a food analyst at US investment bank AllianceBernstein, weighed up the deal potential in a research note.
“Strategically, there could be some merit to such a deal, although 85% of Lamb Weston’s sales are into foodservice channels, while only 29% of Post’s sales are into foodservice,” she wrote.
“The bigger question then is whether Post could stretch financially to make such a deal work, and whether they would be willing to go after a deal of this scale given the uncertain outlook for the global supply/demand imbalance in frozen potatoes.”
Howard added: “This would be a very large scale deal for Post, especially since the company is already levered to 4.3 times net debt to EBITDA.”
Profits fell in Lamb Weston’s 2024 financial year, with net income and diluted EPS both down 28% at $726m and $4.98, respectively, based on sales of $6.5bn, an increase of 21%.
Post Holdings, which supplies the Bob Evans Farms and the Michael Foods’ Simply Potatoes line to the foodservice channel, generated net income last year of $366.7m, up 21.7%.
Diluted EPS rose 17% to $5.64, while revenue increased 13.3% to $7.9bn.
Lamb Weston’s shares closed up 6.8% on Friday at $79.27 but Post Holdings dropped 2.2% to $117.13.
Sales and volume pressures were again evident in Lamb Weston’s fiscal 2025 first-quarter results, which accompanied the Connell plant-closure announcement, and the volume decline was more pronounced in North America, its largest market.
Group sales dropped 1% to $1.7bn. Volumes fell 3% due to customer losses and the “soft” restaurant traffic, with a positive price/mix of 2%.
North America sales decreased 3% to $1.1bn, accompanied by a 4% volume decline and price/mix of 1%.
Alongside the Jana Partners announcement in October, came news of an interest in Lamb Weston from agri-food firm and investor Continental Grain Co. (ContiGroup).
A simultaneous filing with the SEC at the time, cross-referenced with Jana Partners’ own filing, showed Continental Grain paid $24m to acquire shares in Lamb Weston amounting to less than a 1% stake.
Continental Grain has an investment interest in Restaurant Brands International, which owns the Burger King, Popeyes, Tim Hortons and Firehouse Subs restaurants and fast-food chains.
