The Petersville brands acquired by Pacific Dunlop included Edgell-Birds Eye, Peters Ice Cream, Herbert Adams Bakeries, Socomin and Four ‘n’Twenty. In 1993, Pacific Dunlop also acquired Plumrose, chiefly to obtain the Yoplait brand.
The Age story about the Plumrose acquisition read as follows:
Pacdun’s Plum Bid To Be Not Just A Ham On The World Stage
Monday June 28, 1993
PACIFIC Dunlop may not have completely answered the larger strategic question over the future of its food businesses, but it has resolved a few medium-term issues with its acquisition of the Plumrose businesses in Australasia.
The big issue for Pacific Dunlop is whether or not it can acquire the growth in food that will provide its Petersville operations with the critical mass to be a regional player of significance in food. The opportunities to acquire operations of scale locally are extremely limited.
Indeed, Plumrose was perhaps the last obvious opportunity to make a relatively straightforward acquisition, with most of the rest of the industry controlled by multinationals like Kraft or Nestle.
Until relatively recently, even Plumrose looked unattainable. It has been one of the best-performing businesses of the Danish-based East Asiatic Company.
East Asiatic has, however, been experiencing financial difficulties and has been shedding food assets in Europe. With commitments to its bankers to maintain financial ratios, the allure of what must be a sizeable capital profit from the sale of the local Plumrose business became too great.
PacDun has been talking to East Asiatic almost since the moment, about 15 months ago, it acquired Petersville.
Its ability to deliver a quick deal within East Asiatic’s time frame _ and the proximity of the 2 July settlement date to East Asiatic’s interim balance date is perhaps an indication of its requirements _ as well as its ability to rationalise a full price won it the businesses.
The deal was important for PacDun. Above all, in an industry where there are few opportunities to grow meaningfully through acquisition, each opportunity that does arise becomes that much more important.
Unlike the Wattie deal last year, however, where PacDun was outbid by Heinz, PacDun was both prepared to commit another big amount to the industry and liked the business on the table.
Last year it was still insecure about its attitude towards food _ the early restructuring of Petersville has been harder and slower than expected _ and wasn’t anxious to pay the price for assets in relatively low-growth market segments.
Plumrose comes at a better time _ the earnings improvement in Petersville is starting to come through _ and better fits PacDun’s food businesses and strategies.
At face value it has paid a full price for Plumrose. Paying $225 million for a business with sales of about $175 million and earnings before interest and tax estimated at about $17 million means the price-tag is in line with recent acquisitions in the industry, which have tended to be at or around 13 times EBIT.
The Plumrose operations, with the exception of the canned meat and smallgoods operations, fit perfectly with Petersville’s existing yoghurt and pasta products. There should not only be savings from removing administrative duplication but from marketing and distribution.
Better still, the profile of the business is attractive. Plumrose has products that are at the market-leading end of their categories and that are in high-value-added, high-growth market segments.
PacDun has targeted value-added dairy products to try to exploit the potential of its food business in Asia. Plumrose complements its existing product and brand portfolios, although it will need to negotiate a licence for rights to the Yoplait name if it wishes to use it outside Australasia. The brand is controlled by a French cooperative and rights to most of Asia are apparently still available.
The Plumrose business is so attractive it is surprising there wasn’t more of an auction. There is said to have been serious interest from the multinationals but no formal auction process.
Perhaps, if PacDun was, as it seems to believe, first at the table, its willingness to pay the price and its ability to complete the deal quickly headed off a more formal sales process.
The deal also illustrates the value of a good balance sheet.
PacDun has traditionally raised equity to finance any significant expansion, generally in tandem with any deal. It didn’t need to contemplate an issue to acquire Plumrose not just because the amount involved _ $225 million _ was digestible but because it has been running an increasingly clean balance sheet.
PacDun, with hindsight, was probably overcautious when it acquired Petersville. Unsure about the level of business and financial risk that might have lurked within the food group, it raised about $670 million of equity to finance an acquisition which, with the equity and Petersville’s debt, involved an exposure of about $1 billion.
Since buying Petersville, PacDun has got its earnings up and its funds employed down. It has raised about $300 million from selling Petersville’s non-food assets. That will have improved PacDun’s ratios.
The next phase of PacDun’s food group activity, it appears, will be concentrated on continuing the grind of improving Petersville’s businesses _ the objective of an EBIT-to-sales ratio of 10 per cent is still a couple of years away _ and integrating the Petersville and Plumrose operations.
One would also expect that PacDun will pursue the strategy it has used for other branded product businesses and make as many “infill” acquisitions as it can find.
Then it will have to await another Plumrose-type opportunity, or try to create one, where it can buy assets of sufficient scale to move the food group significantly forward.
Scale is important not just because of the synergies available from adding brands to an existing infrastructure domestically but in providing the platform and support _ the critical mass _ to underpin an export strategy.
The $1.1 billion of sales PacDun now has, post-Plumrose, is a solid base but only a start.
Given the size and firepower of the multinationals now stomping around Asia, and the financial commitments necessary if PacDun is to carve out some worthwhile niches in those markets, much of the strategic planning at PacDun over the next few years will no doubt revolve around the search for more Plumroses or something substantially larger.