Hormel Foods to acquire Applegate Farms

Austin, Texas-based Hormel Foods is acquiring Applegate Farms LLC for about $775 million, a move with which, the maker of Spam hoped to gain a foothold in the organic-meats category.

The annual sales of the closely held Applegate was expected to be around $340 million this year, Hormel HRL, said in a news release yesterday announcing the deal.

A deal would come after other transactions over the past year involving protein companies.

Tyson Foods Inc, in 2014, paid $7.7 billion for Hillshire Brands Co, which makes Jimmy Dean sausages (See: Tyson Foods enters bidding war with $6.2-bn offer for Hillshire Brands), wresting it from Pilgrim's pride, while Post Holdings Inc bought egg and dairy-goods company Michael Foods Group Inc.

A change in consumer eating habits was underpinning consolidation in the sector, as US consumers moved to more protein-heavy diets, eschewing carbohydrates, as they sought more organic products.

Hormel had been diversifying its portfolio of food brands to capitalise on growing protein demand and higher-margin foods.

Last year, the company paid $450 million for CytoSport Holdings Inc, maker of Muscle Milk-brand protein shakes and powders, and in 2013 it acquired the Skippy peanut butter brand from Unilever Plc for about $700 million (Hormel Foods to acquire CytoSport Holdings for $450 mn).

The announcement came after stock markets  closed yesterday. Hormel shares were up over 3 per cent in aftermarket trading.

Applegate Farms sells deli meats, hot dogs, bacon and sausage, among other products, and says it does not include GMO ingredients. It says it feeds its animals a vegetarian diet, and claims to treat them humanely, shuns antibiotics, hormones, or artificial ingredients and preservatives. The company's expected revenue is projected at about $340 million in 2015.

According to Hormel, it would not change the way Applegate raised animals or produced meats.

Founder Stephen McDonnell, is the majority owner of the company, while private equity firm Swander Pace Capital holds a minority stake. According to Hormel, the deal should close within 60 days, following which, Applegate would be an independently operated unit of Hormel Foods Corp's refrigerated foods business.

Bridgewater, New Jersey-based Applegate has around a 100-strong workforce. According to Hormel, McDonnell would work as an adviser and CEO Kerry Collins continue in her current role for a few months.

Austin, Minnesota based Hormel Foods Corp reported $2.28 billion in revenue in its latest fiscal quarter.