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Takeaway: Last night Hormel Foods announced it will acquire Applegate Farms for $775mm.

There is no shortage of “old line” food manufacturers looking to acquire growth brands.  

Last night Hormel Foods announced it will acquire Applegate for $775mm.  The strategic fit make sense given Applegate's strong brand position in the natural and organic prepared meats category, a segment in which Hormel has limited exposure.

Hormel expects the acquisition to be neutral to FY15 EPS and accretive by $0.07-0.08 per share in FY16.  The accretion will likely come from revenue synergies and not cost savings.  Hormel will likely improve the top-line growth profile, as Applegate will benefit from expanded sourcing and increased distribution.

Not surprisingly on the back of this news we are seeing a positive reaction to some of the other names that could also be in play: LNCE, WWAV, JJSF and PF.  We would also note that HAIN is not responding as favorably to recent M&A news. 

We continue to believe that HAIN is not a target, due to the structure of the company and collection of brands that do not participate in the “organic category.”

Below is a one page summary of the Hormel/Applegate deal:

A MAJOR MOVE IN THE ORGANIC SPACE - HRL acquires Applegate chart 1