Minneapolis-based International Multifoods Corp, a manufacturer and marketer of branded consumer foods and foodservice products in the US, has entered into an agreement with a newly-formed affiliate of Wellspring Capital Management, to sell its foodservice distribution business Multifoods Distribution Group (MDG) for about US$180m in cash, subject to closing adjustments, such as the level of working capital.
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The purchase price assumes a working capital level at closing of about US$135m.
The transaction is dependent upon the completion of buyer’s financing and customary closing conditions, including regulatory and Multifoods’ lender approvals. NY-based private equity investment firm Wellspring and its affiliate have received financing commitments for the entire purchase price, subject to customary conditions. The deal is expected to be completed before the end of September.
Multifoods intends to use the cash proceeds following completion of the transaction to reduce debt.
“The decision to sell MDG represents another important step forward in Multifoods’ transformation to a branded food products company,” said Gary E. Costley, chairman and CEO. “By divesting the foodservice distribution business, we can now focus our full attention on food manufacturing and build on our expertise in grain-based foods. Furthermore, the cash generated from this sale will allow us to significantly reduce our debt and improve our financial position.
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By GlobalData“The management team of Wellspring, led by George Holm, has significant experience in foodservice distribution,” Costley said. “We are pleased to have found a buyer that understands this business.”
William F. Dawson, Jr., a partner of Wellspring, said, “Wellspring is excited about the prospect of working with industry veterans of George Holm’s and Pat Mulhern’s caliber to accelerate the sales of VSA and continue to profitably grow the foodservice distribution business.”
“We are privileged to take on MDG and its 2,500 associates,” said George Holm, president and CEO of the newly formed company. “We will be driven to please our customers and suppliers in the vending and foodservice distribution industries.”
As a result of this action, Multifoods must now report its foodservice distribution business as a discontinued operation.
The company said that it expects the divestiture to reduce earnings per share by up to 40 cents in the current fiscal year ending 1 March 2003. As a result, FY 2003 earnings from continuing operations are expected to be in the range of US$1.5 to US$1.6 per share. The company expects Q2 earnings from continuing operations of 18 cents to 20 cents per share.
The company expects to record a non-cash, pre-tax charge of about US$50m, or US$32m after tax, related to the sale of its distribution business. At the end of June, the net book value of MDG was about US$216m.
The divestiture is expected to be accretive to Economic Value Added (EVA) by about US$9m over the next 12 months.
On a discontinued operations basis, MDG’s net sales for the fiscal year ended 2 March 2002, were US$2.24bn, operating earnings before unusual items were US$17.8m and net earnings were US$4.2m, or 22 cents per share.
MDG, headquartered in Denver, is a leading distributor to vending operators and foodservice customers in targeted segments of the foodservice industry. It employs around 2,500 people and operates 27 distribution centres throughout the US. The distribution business accounts for about 70% of International Multifoods’ sales and 20% of its total operating earnings.
