Hormel Foods Corp (NYSE: HRL) has agreed to buy Muscle Milk maker CytoSport Holdings Inc for $450 million. The acquisition will enable the meat processing company to expand into other areas in the food business.
Hormel Foods, the Minnesota based company whose product includes Spam and Skippy Peanut Butter will broaden their market for high protein supplements. Adding Muscle Milk and other CytoSport products such as Whey protein powder to its product line will expand its market. Consumers embrace these products as fitness and weight loss supplements are in high demand.
"Our acquisition of Muscle Milk will build upon our strength in protein, but allow us to further diversity our portfolio," Hormel Chief Executive Jeffrey Ettinger said in an interview
CytoSports, the maker of Muscle Milk are expecting sales of approximately $370 million in 2014. Analyst forecast the acquisition will add about five cents a shares to earnings in fiscal year 2015. According to research firm, Nielsen (NYSE: NLSN), sales of packaged foods with protein related claims on their labels rose to $7.5 billion in the U.S. Up more than 50 person from four years earlier.
CytoSport was founded in 1998 by a father and son duo, Greg and Michael Pickett. Two years later, the company introduced Muscle Milk, which has been its biggest seller. Muscle Milk began as a protein powder then expanded into other categories like protein bars, oatmeal and ready to drink protein products. The acquisition by Hormel would help expand CytoSport’s products internationally.
The food market has seen several takeovers within the past couple of years. Hormel spent $700 million last year to acquire Skippy peanut butter from Unilever (NYSE: UN). Chinese meat company WH Group, then known as Shuangui International Holdings, acquired U.S pork producer Smithfield Foods Inc for $4.7 billion, which was the largest Chinese takeover of an American Company.
Ettinger said Hormel is willing to take on $2 billion in debt for more deals. Shares of Hormel have increased around 9 percent this year. The agreement to purchase the California based CytoSport is subject conditions, including regulatory approvals and is expected to close the deal within 30 days.