South Korean food giant CJ Group is about to complete its largest ever merger and acquisition (M&A) deal.
According to investment banking (IB) industry sources on Nov. 14, CJ CheilJedang Corp., a processed food maker under conglomerate CJ Group, is to hold a board meeting on Nov. 15 to approve a proposal to take over Schwan‘s Co., a U.S.-based producer of frozen foods.
The acquisition price is estimated at slightly over 2 trillion won (US$1.77 billion). If CJ succeeds in acquiring the U.S. food processor, the transaction would be the biggest M&A deal for the group and in the nation’s food industry. The previous record for the group was the 1.9 trillion won (US$1.68 billion) acquisition of Korea Express, which is renamed to CJ Logistics Corp., in 2011.
CJ CheilJedang is planning to raise up to 700 billion won (US$617.83 million) through private equity fund JKL Partners Inc., which is a financial investor (FI), while NH Investment & Securities Co. will also arrange financing from institutional investors at home and abroad. CJ CheilJedang will also sell its non-performing assets to raise funds.
The company will acquire a 80 percent stake in Schwan‘s Co. and exercise its preemption right for the remaining 20 percent to prevent the shares from being sold to a third party. An official from CJ said, “It is true that the deal is imminent but I cannot disclose the details.”
Founded in 1952, Schwan's Co. sells mainly frozen foods, including pizza and desserts. The company ranks second in the U.S. frozen pizza retail market with a 24 percent share and first in the frozen dessert market and the school meal pizza market. It posted 3.2 trillion won (US$2.82 billion) in sales and 200 billion won (US$176.52 million) in operating profit last year. Schwan's Co. owns three large logistics centers that allow the company to supply its products throughout the U.S. as well as 400 delivery agencies and 4,500 delivery vehicles. The company has 14,000 employees.
The industry expects that CJ CheilJedang will be able to not only expand its product portfolio but also secure distribution networks across the U.S. when it acquires Schwan's Co. The company can add products from Schwan's Co. in its home meal replacement (HMR) product line.
With the deal, CJ CheilJedang will also be able to grow further in the U.S. HMR market where refrigerated foods and foods that can be stored at room temperature are becoming popular.