Keeping with Tyson Foods Inc.’s goal to become a protein powerhouse, the company recently snapped up an organic chicken company and found a buyer for its frozen foods brands.
On Monday, the Springdale company purchased Tecumseh Poultry, a producer of organic chickens, and agreed Friday to sell its Sara Lee frozen bakery and Van’s breakfast businesses to private equity firm Kohlberg & Co.
Tyson plans to operate Tecumseh, maker of Smart Chicken, as a wholly-owned subsidiary. In the deal, the company acquired two processing plants located in Tecumseh and Waverly, Neb., and its company and contract growers. The deal became final with Monday’s announcement.
“We’re excited for Tecumesh to continue to produce quality chicken while providing the business the scale and resources it needs to continue growing,” Doug Ramsey, Tyson’s group president of poultry, said in a statement. The Springdale company plans to retain Tecumseh’s 600-person workforce, which includes operations staff, sales teams and management.
D.A. Davidson & Co. acted as exclusive financial advisor to Tecumseh Poultry in the deal.
In a research note, Farha Aslam, a Stephens Inc. analyst, said the purchase of Tecumseh has two upsides: it caters to a growing demand for organic chicken; and it offers a product with higher margins than conventional chicken. The retail price for organic chicken is almost three times higher than conventional chicken, according to Aslam’s Tuesday research note.
Although there’s significant fresh supply differences, organic chicken sales grew 12 percent in the 52 weeks ending April 28, while conventional chicken sales grew 3 percent, Nielsen data show. Tyson also produces organic products under its Nature Raised Farms and Aidells brands.
In the “slurry of acquisitions,” Ken Shea, Bloomberg Intelligence’s senior food and beverage analyst, said the Tecumseh transaction came more as a surprise than the frozen goods sale last week, but alligned with the company’s growth strategy.
Tecumseh’s chicken, deli meats and chicken sausage offerings “fit well” with Tyson and “command better margins than traditional broiler production,” Shea said.
Plans to sell the company’s non-protein assets — Sara Lee, Van’s and Kettle — have been in the works since early last year, when Tyson agreed to acquire sandwichpacker Advancepierre. At the time, Tyson sought to focus less on soups, baked goods and waffles, and more on its core businesses: meats.
Shea guessed Tyson paid a “couple hundred million” for the organic chicken producer. While financial details were not disclosed from the meat giant, Stephens estimated Tyson paid $375 million for Tecumseh, founded in 1998.
Of the non-protein brands, Tyson first sold Kettle to Ireland-based Kerry Group in December for $125 million. The Springdale company used proceeds from Kettle, a maker of soups and sauces, to pay down first-quarter debt. In Tyson’s first quarter earnings report, released in February, the food giant told investors it would sell the remaining businesses before the end of this fiscal year, September 2018.
The sale of Sara Lee and Van’s is expected to be final in Tyson’s fourth quarter. Agreement terms were not disclosed.
In the deal, Kohlberg & Co. will acquire the Chef Pierre, Bistro Collection and Van’s brands. A Tyson spokesman clarified in an email on Monday that the company is transferring rights associated with the frozen bakery business.
A sales office in Canada and prepared foods plants in North Carolina and Michigan will also be owned by the firm. According to a news release, Tyson’s 1,160-employees from these sites are “expected to keep their positions” under Kohlberg’s ownership.
“While it was a difficult decision to divest these businesses, I’m pleased to see Kohlberg’s interest in continuing the fine legacy that can be attributed to our team members in Traverse City, Michigan, Tarboro, North Carolina and by the people who support these businesses from our corporate offices,” Sally Grimes, Tyson’s president of prepared foods, said in an internal memo issued Friday.
“Our focus is on making this transition as smooth as possible” for stakeholders and employees that support Van’s or Sara Lee. The deal is set to be final by the end of July.
Sara Lee’s retail sales were estimated between $70 million to $100 million for fiscal 2017, while its foodservice sales generated about $300 to $350 million, according to Stephens. Van’s, a maker of waffles and breakfast sandwiches, recorded about $60 million in sales last fiscal year.
Rothschild & Co. is acting financial advisor on the pending sale.
Aslam does not anticipate the selling of Sara Lee and Van’s to affect Tyson’s shares, she said in an investor note. Given “very strong” beef margins, Tyson is well positioned to deliver earnings growth next quarter, the note said.
Tyson shares rose 51 cents to close Tuesday at $69.11.