New York, Jul. 25 - Food processor and distributor Michael Foods is back on the auction block and could fetch around $1.7 billion, sources said on Tuesday, nearly a year after the company pulled plans to sell itself.
The company's majority owner, private equity firm Thomas H. Lee Partners, yanked plans to sell the business last year after the death of a Michael Foods executive who was slated to be its next CEO.
Michael Foods put a new top executive in place this spring and retained investment banks Bank of America Corp and JPMorgan Chase & Co to resume efforts to explore strategic options for the company, sources said, which could also include a refinancing or an initial public offering.
All companies declined to comment.
THLee agreed to buy Michael Foods for about $1.05 billion in October 2003. The Minnetonka, Minnesota-based company processes and distributes food service and retail brands Simply Potatoes, Better'n Eggs, Diner's Choice and others.
Net earnings for the year ended December 31, 2006 fell 51 percent to $19.2 million, according to a regulatory filing. Net sales for the year rose slightly to $1.25 billion.
Earnings before interest, taxes, depreciation and amortization (EBITDA) last year inched up to $180.9 million, compared to $180.6 million in the 2005 period. Its EBITDA, a measure of cash flow, when THLee bought the company was around $140 million, according to one source.
A lagging egg market and rising corn costs pinched profits at the company, CEO Gregg Ostrander said in the filing.
"We are faced with on-going cost pressures in 2007. In particular, corn costs, driven by robust ethanol demand, are very high and show few signs of abating," Ostrander said.
SECOND TIME AROUND
Last summer, when the company was preparing to sell itself, Ostrander planned to hand the CEO reins over to then president and chief operating officer J.D. Clarkson. Any suitors interested in buying the company back then would have inherited Clarkson as the CEO, with Ostrander overseeing the transition.
But Clarkson died of pancreatic cancer on August 26, 2006, at the age of 53, according to a local newspaper article.
THLee and Michael Foods executives decided to pull the auction.
The company hired David Johnson as chief operating officer and chief executive officer-elect in March of this year. Johnson was president of Kraft Foods North America, where he spent 20 years, and previously worked at RJR Nabisco.
THLee plans to have Johnson take the top spot at the company after Ostrander oversees its transition during the sale process, one of the sources said.