July 01--Hormel Foods Corp. is getting into the protein drink business.
Hormel announced Monday an effective agreement to buy CytoSport Holdings, Inc., the company behind the Muscle Milk brand of protein drinks, powders, bars, energy chews and more for about $450 million. The acquisition is expected to bring in about $370 million in total 2014 sales to Hormel, and company representatives predict Muscle Milk will increase shares by 5 cents in fiscal 2015. The agreement is expected to close within a month.
Hormel Foods CEO and President Jeff Ettinger touted the acquisition as a positive step toward the company's mission to reach consumers with more portable, immediate high-protein products.
"Today's consumers are busier than ever and are seeking protein rich foods that can be eaten on the go," Ettinger said.
The deal also includes a Benicia, Calif., manufacturing plant and various distribution opportunities.
CytoSports Holdings owners have tried to sell the business over the past few years. Hormel was rumored to be among potential buyers of the Muscle Milk brand in February.
Muscle Milk will be added to the company's specialty foods division, which was up 7 percent in 2013 but down 34 percent in the fourth quarter of last year after Hormel lost a deal with Diamond Crystal brands to sell certain sugar substitutions. The division accounts for 10 percent of net sales and saw a 26 percent decrease in profits from last year in the 2014 second quarter, as well as a 12 percent decrease in sales.
Hormel officials believe Muscle Milk's presence as a leading sports nutrition brand will help anchor the division and provide more sales channels for the company to explore in the future.
Ettinger said the company expects Muscle Milk sales to grow beyond the company's 5 percent annual growth goal for next year and could do even better as Hormel throws its sales force and research departments behind the protein line.
"We have a great track record of innovation with well-known brands," Ettinger said. "... We're in the process of doing that with Skippy and we expect to do that with Muscle Milk."
Ettinger said the company will likely examine ways to expand Muscle Milk's appeal while respecting the brand's image that has already been built.
Hormel's international division will take charge of Muscle Milk's international sales moving forward. The brand previously captured about 10 percent of its sales in the global market and had looked to expand in English-speaking countries like Canada, the United Kingdom and Australia, along with Germany. Ettinger said Hormel may expand the Muscle Milk brand in Latin America,a strong market for sports nutrition products.
Muscle Milk is the latest in a string of acquisitions Hormel has made in recent years. The company bought Skippy peanut butter for $700 million in 2013. The company acquired Wholly Guacamole dip in 2011, Country Crock and Don Miguel in 2010 and MegaMex Foods in 2009. Hormel was also rumored to be interested in buying the Ragu brand, but it sold to Japan's Mizkan Group earlier this year.
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Original headline: Hormel Foods muscles ahead: Company to buy maker of nutrition, protein shake lines for $450 million
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