Del Monte Completes Sale Of StarKist To Dongwonff

Source: Business Wire

Del Monte Foods Company announced yesterday, October 6th, that Del Monte Corporation, its wholly-owned subsidiary, has completed the sale of its seafood business, including StarKist, to Dongwon Industries Co., Ltd. (“Dongwon Industries”) and its subsidiaries (collectively, “Dongwon”) for approximately $359 million, including an adjustment for the preliminary estimate of working capital which will be updated once the final working capital is determined. The sale was completed pursuant to the previously announced Purchase Agreement among Del Monte Corporation, Dongwon Enterprise Co., Ltd., Dongwon Industries, Dongwon F&B Co., Ltd., and certain direct and indirect subsidiaries of Dongwon Industries.

”The divestiture of StarKist improves Del Monte’s margin structure, eliminates a source of earnings volatility and reduces debt leverage,” stated Rick Wolford, Chairman and CEO of Del Monte Foods. “This sale also increases Del Monte’s focus on faster growing, value-added, higher margin branded businesses, a key component of our accelerated growth plan.”

”We are very pleased to have successfully closed this transaction and to welcome the StarKist family to our portfolio of products,” remarked Mr. Ingu Park, Vice Chairman of Dongwon Enterprise. “StarKist, a 65-year old brand and top household name, represents a great opportunity for us to initiate operations in the United States. We will continue to leverage the value this brings as we build upon its 37% market share and number one position in the shelf stable tuna category in the United States.”

The divestiture, announced June 29, 2008, included the sale of Del Monte’s manufacturing capabilities in American Samoa and Manta, Ecuador; and certain manufacturing assets associated with StarKist seafood located in Terminal Island, California and Guayaquil, Ecuador. All of Del Monte’s direct plant personnel related to the seafood business joined Dongwon as a result of the divestiture. In addition, as a result of the transaction, Del Monte transferred to Dongwon or eliminated a total of 33 salaried positions, consistent with expectations.

Del Monte has also entered into a two-year Operating Services Agreement with Dongwon where Del Monte will provide various operational services, such as warehousing, distribution, transportation, sales, IT and administration to the transferred business. This agreement is expected to offset the majority of fixed infrastructure costs retained by Del Monte in fiscal 2010. The benefit from the Operating Services Agreement coupled with the interest savings from planned debt reduction should cause the transaction to be essentially neutral to Del Monte’s EPS in fiscal 2010.

The transaction generates net after-tax cash proceeds of approximately $300 million, which will be applied toward debt reduction in accordance with the Company’s Credit Agreement dated as of February 8, 2005, as amended through April 25, 2008. The Company’s projected Debt to EBITDA ratio for year-end fiscal 2009 is expected to improve to approximately 3.6x from approximately 4.0x due to the deleveraging impact of this transaction.

Both Dongwon and StarKist are listed in the Atuna Stock Index – click here to go to the Stock Index