Birds Eye Becomes Part of Pinnacle Foods In $1.3 Billion Cash Deal

Retailing recently at $3.00 per 283-gram package, Savory Brussels Sprouts under the Steam & Serve sub-brand is one of many frozen vegetables from Rochester, New York-headquartered Birds Eye Foods. The petit sprouts are flavored with tarragon-infused butter with bacon and a touch of brown sugar. Ready to serve after six minutes of microwaving, the product’s steaming tray is topped with an easy peel film tab that allows consumers to quickly and safely vent the hot steam buildup within the container prior to stirring and serving the contents.

Birds Eye Foods, the largest frozen vegetable company in the United States, has been acquired for more than $1.3 billion by Pinnacle Foods.

Owned by New York’s Blackstone Group, Pinnacle Foods is one of the country’s largest packaged food companies, with consumer brands that include several frozen as well as shelf stable food lines.

Rochester, New York-headquartered Birds Eye, known for its branded frozen vegetables and frozen meals, is owned mainly by the private-equity firm Vestar Capital Partners. It is also 40% owned by Pro-Fac, a 48-year-old New York agricultural cooperative. Birds Eye carries about $700 million in long-term debt.

Acquired by Vestar in 2002, Birds Eye has about 1,700 full-time employees, and commands a dominant niche in frozen foods with about 25% of the frozen vegetable market in the United States. Mountain Lakes, New Jersey-based Pinnacle Foods was acquired by Blackstone in 2007 for $2.2 billion. Its frozen lines include Swanson and Hungry Man dinners, Celeste pizzas, Van de Kamp’s and Mrs. Paul’s seafoods, and Lender’s bagels.

Birds Eye had filed in early October for an initial public offering to raise at least $350 million. Securities and Exchange Commission (SEC) filings showed annual sales of $936 million and net income of $53.6 million for the year ending June 27, 2009. That was up from $868.3 million in sales and $38 million in net income a year earlier.

The all-cash deal is yet another sign that private-equity funds have become more willing to make acquisitions after a tumultuous two-year period. Many private-equity funds are also eager to sell off businesses, having delivered few returns during the freeze in the credit and merger markets. The purchase may also be another signal that lenders are willing to lend at higher leverage levels.

History Dates Back to 1929

Birds Eye became a national brand in 1929 after frozen food pioneer Clarence Birdseye sold the rights to his process to General Foods, then known mainly for Kellogg’s cereals. But General Foods itself was acquired in 1985 by Philip Morris, later known as the Altria Group. Birds Eye operations were sold in turn to Dean Foods in 1993, and the brand was sold by Dean in 1998 to Agrilink Foods (formerly Curtice-Burns Foods), which was owned by the Pro-Fac Agricultural Cooperative. Vestar bought a controlling interest in 2002, and the company name was changed to Birds Eye a year later.

During its years under Vestar, the company undertook several major initiatives. At the beginning of 2006, it launched Steamfresh, the first line of frozen steam vegetables to gain any traction on a nationwide scale; the category has since grown to $580 million at retail. In its filings with the SEC, the company said that 15.4% of its sales in fiscal 2009 and 17.9% in fiscal 2008 came from products that hadn’t existed two years earlier.

During fiscal 2009, Birds Eye implemented several strategic plans to invest in and expand the brand, including increased consumer marketing and trade promotions, targeted product innovation, brand extensions and a focus on higher-margin categories. One factor helping the bottom line is that only 7.9% of its raw material comes from domestic producers via Pro-Fac. Most of its broccoli and cauliflower come from a Mexican processor under a long-term contract.