HP gives Heinz more varieties

CHICAGO - US food company H.J. Heinz has agreed to buy Danone's UK-based HP Foods business for about US$855 million ($1.2 billion) in a deal that puts HP and Lea & Perrins sauces under the same roof as its own Heinz ketchup.

The cash purchase would help Pittsburgh-based Heinz to focus more around core areas like condiments and infant nutrition, while France's Danone would focus almost exclusively on water, yogurt and biscuits.

About 38 per cent of Heinz's business would come from condiments and sauces following the deal, a spokesman said. But the company also has a large business in products such as soups and baked beans in Britain.

Analysts said Heinz was buying a collection of largely UK domestic brands such as HP and Daddies sauces, with only Lea & Perrins Worcestershire sauce a truly global brand.

"It's a highly profitable business and will fit well with Heinz, but it's not a top-notch price because it's not a top-notch business," said analyst David Lang at Investec Securities.

While analysts agreed that the deal fits Heinz strategy, they were sceptical about how much growth potential there was in the brands.

"It seems to be fairly sensible, but not terribly exciting," William Leach, analyst at Neuberger Berman, said. "These are mature brands."

Heinz said it expected the acquisition to add to earnings in the first full fiscal year and to close in the next few weeks pending all regulatory approvals.

The deal follows on the acquisition of a majority stake in Russian condiments and sauces maker Petrosoyuz as Heinz shifts its focus from an overhaul of its US business to Europe.

Heinz has been hurt in Europe by the growth of deep discount retailers and a portfolio some analysts say focuses too much on commodity-type products that are hard to differentiate from competitors.

- REUTERS