Unilever Selling Ragu, Bertolli Sauces to Japanese Company

$2.15 Billion Deal is Expected to Close in June

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Unilever has said ciao to its Ragu and Bertolli pasta sauce business, agreeing to unload it to Japanese food manufacturer Mizkan Group for about $2.15 billion as the maker of Dove skin creams continues to shed food brands.

The deal transfers Ragu, the best-selling U.S. pasta sauce that helped popularize Italian food in America, into the hands of a closely held Asian company founded 210 years ago. Together, the brands have annual sales of more than $600 million, London- and Rotterdam-based Unilever said today in a statement.

Under CEO Paul Polman, Unilever has focused on its health and beauty business while selling slower- growth food brands, mainly in the U.S. For Mizkan, the deal, its largest ever, enhances its North American exposure, which it has been growing via acquisitions to reduce its reliance on a shrinking population in Japan.

"The deal is the tip of the iceberg of upcoming Japanese food and beverage makers' outbound acquisitions to counter slowing domestic demand," said Yasuhide Yajima, chief economist at NLI Research Institute in Tokyo.

The food company, based in Japan's Handa City, makes condiments including mustards and rice wine. Mizkan unveiled a five-year plan in January, saying it needs to expand overseas as the Japanese population shrinks. The company was founded in 1804 to make vinegar from the leftovers of sake production.

In 2005, Mizkan bought Holland House cooking wines and in 2011 it purchased Border Foods, a processor of hot peppers. Mizkan has also expanded in Britain, acquiring the Branston range of pickles and sauces from Premier Foods earlier this year. Today's deal includes two U.S. production facilities.

The purchase will allow Mizkan to get a majority of its revenue from abroad, compared with 34% in the year through February, Misato Kimata, a spokeswoman, said by phone.

The sale price represents a "healthy" multiple of 3.5 times sales, said Graham Jones, an analyst at Panmure Gordon. "Unilever needs to now demonstrate that with an improved performance in spreads it can reduce the growth drag from its foods division," Jones said.

The maker of Axe body spray and Tresemme shampoo is the world's leading maker of spreads like Flora and Country Crock, but unit sales in the division that includes spreads have declined for seven straight quarters.

Unilever's food unit, which does not include its tea and ice cream business, accounted for 35% of sales in 2008, the year before Polman took the helm. Today, it's 27%.

"This sale represents one of the final steps in reshaping our portfolio in North America," Kees Kruythoff, president of Unilever's business in the region, said in a statement. Unilever is still looking to sell its Slim-Fast diet food business, which it put under review along with the pasta brands earlier this year.

Founded in Rochester, New York, in 1937 and acquired by Unilever in 1987, Ragu accounts for about 40% of Unilever's $1.2 billion pasta-sauce sales, according to data tracker Euromonitor International. Sales have declined 18% since 2009, hurt by the encroachment of private-label sauces, which now account for about one quarter of the market.

Ragu's advertising has most recently been handled on a project basis by WPP's Ogilvy. The brand was previously at Barton F. Graf 900, which was behind the "Long Day of Childhood" campaign, which included edgier ads such as one in which a kid catches his parents in the act in their bedroom.

The $2.6 billion North American pasta sauce category has grown by only 1.3% since 2009, according to Euromonitor. Still, Ragu is the best-selling sauce in the U.S., with 25% of the market. Campbell Soup Co.'s Prego brand is second with 17%. Bertolli is the second-largest brand in the U.S. premium pasta sauce market, Mizkan said.

Unilever said it expects to conclude the transaction by the end of June.

Unilever sold Ragu in the U.K. in 2011, Skippy peanut butter and Wish-Bone last year, and its European meats business including the Peperami brand in February. It will continue to sell pasta sauces under the Raguletto brand in Finland, South Korea and other countries, and under the Knorr brand in Europe, a Unilever spokeswoman said.

~ Bloomberg News with Ad Age staff ~
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