2/27/2021
An Investor With Value Approach Takes the Next Step to Turn Around a Food and Beverage Manufacturer
CNBC (02/27/21) Squire, Kenneth
13D Monitor founder and President Kenneth Squire writes that JANA Partners on Jan. 29 informed TreeHouse Foods (THS) of its plan to nominate Meredith Adler (Institutional Investor's top ranked analyst in the food and drug industry for 14 years), John Paul Gainor Jr. (former Dairy Queen [DQ] CEO and president), and Charles L. Myers (former portfolio manager at Fidelity) for the company's board at its 2021 Annual Meeting. JANA believes this represents an appealing investment opportunity with TreeHouse nearly three years into a sweeping turnaround. Treehouse's current stock market value is $2.8 billion, with a per-share price of $50.02 per share. JANA has been engaged in constructive dialogue with TreeHouse's board and management on measures to resolve the company's undervaluation and total stockholder return, including assessing a sale of the company, operations, capital allocation, corporate governance, and compensation practices. JANA has extensive experience in the food and beverage manufacturing sector, including a solid track record in the consumer retail space. Its involvement has led to sales of Pinnacle, PetSmart (PETM), Safeway, Whole Foods (WFM), and ConAgra's (CAG) spinoff of its Lamb Weston (LW) business. Moreover, a substantial portion of Treehouse's assets were acquired from ConAgra at JANA's behest. Although JANA partner Scott Ostfeld is on ConAgra's board, Squire doubts that ConAgra is a potential Treehouse acquirer. It is not interested in private label production, as demonstrated by the 2015 sale of its Ralcorp business to TreeHouse for $2.7 billion following its $5 billion acquisition three years before. "TreeHouse is a pure play private label business, which is an area of tremendous secular tailwinds," Squire states. "Private label brands are cheaper for consumers, more profitable for retailers, and do not have the stigma of generic brands of yesteryear (think Whole Foods 365 or Costco's [COST] Kirkland). As a result, shelf space has been migrating towards private label space, with tremendous growth in the U.S., which is not close to the penetration level of Europe." While Treehouse is engaged in an extensive turnaround program, its operational improvements have not led to commensurate upgrades in stock price. Squire points out that Post (POST) sold part of its private label business to Thomas H. Lee Partners for over 10 times EBITDA in 2018. "A 10 times multiple here would imply a six handle on a sale," he writes. "Similar to their engagements in Whole Foods, ConAgra, and Pinnacle, JANA has yet again teamed up with world-class executives who they are nominating to the board. While their expertise would not be as necessary in the context of a sale of the company, they could certainly help evaluate a potential sale, and they have tremendous experience in public markets as well, so they can help rehabilitate the equity story in the meantime."
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