TreeHouse Foods Inc. is a manufacturer and distributor of private label packaged foods and beverages in North America. It has approximately 40 manufacturing facilities across North America and Italy. Its product portfolio entails snacking, beverages, and meal preparation products, available in shelf stable, refrigerated, frozen, and fresh formats.
Stock Market Value: $2.8 billion ($50.02 per share)
Percentage Possession: 7.51%
Average Value: $41.68
Activist Commentary: JANA makes exercise of a value-oriented and research-intensive approach to special situation public security investing, capitalizing on the transactional, legal and finance backgrounds of its principals. JANA has broad activist expertise. They exercise various shareholder tools together with letters, proxy fights, shareholder communications and lawsuits to achieve their activist goals. On the other hand, they have crafted a reputation for a ‘diplomacy first’ approach. JANA also partners with highly credentialed executives who carry verbalize trade expertise to the situations and lend credibility to their arguments.
The firm does not exercise activism merely to agitate boards and management, nonetheless to put in power sound, successfully-conceived industrial strategies that they strongly think about will enhance shareholder value.
Barry Rosenstein, managing partner at JANA, calls his activist strategy “V cubed”. The three “Vs” are”(i) Value: you want to catch in at the correct stamp with a margin of safety so that JANA tranquil has a accurate investment in the tournament the activism does not work; (ii) Votes: you want to know whether you have the votes sooner than commencing a proxy combat; and (iii) Variety of ways to grasp: you want to have more than one strategy to enhance value.
On January 29, 2021, JANA notified TreeHouse Foods of their intent to propose three nominees, Meredith Adler (Institutional Investor’s top ranked analyst in the food and drug sector for 14 years), John Paul Gainor Jr. (frail president and CEO of Dairy Queen) and Charles L. Myers (frail portfolio manager at Fidelity), for election at the company’s 2021 Annual Assembly. JANA believes this represents an attractive investment opportunity with TreeHouse nearly three years into a comprehensive turnaround.
The firm has had optimistic discussions with TreeHouse’s board and management regarding avenues to resolve the company’s undervaluation and total stockholder return, together with evaluating a sale of the company, operations, capital allocation, corporate governance and compensation practices.
JANA has broad expertise on this trade, with a profitable track anecdote in the individual retail space and their involvement has led to sales of Pinnacle, PetSmart, Safeway, Whole Foods and ConAgra’s spinoff of its Lamb Weston industrial. The firm is aware of TreeHouse successfully as a significant part of its assets had been acquired from ConAgra at JANA’s urging.
JANA partner Scott Ostfeld is at the moment on the board of ConAgra, nonetheless plan no longer see for ConAgra to be a potential acquirer. It is not drawn to private label manufacturing, which is why it provided the Ralcorp industrial to TreeHouse in 2015 for $2.7 billion, much less than three years from acquiring it for $5 billion.
TreeHouse is a pure play private label industrial, which is an area of broad secular tailwinds. Private label brands are cheaper for patrons, more profitable for retailers and plan no longer have the stigma of generic brands of yesteryear (mediate Whole Foods 365 or Costco’s Kirkland). As a result, shelf space has been migrating towards private label space, with broad jabber in the US, which is never any longer terminate to the penetration degree of Europe.
TreeHouse is a number of years into an broad turnaround program that has helped it significantly fortify its product portfolio, meander-to-market structure, and provide chain and provider operations. On the other hand, it is far also a damaged equity story in that these operational improvements have no longer been mirrored in the stock stamp. As one among the most efficient pure play private label manufacturers, with no real comps, TreeHouse is never any longer a great public company. The opportunity is for it to be provided to private equity, who has a ton of dry powder and a lot of tension to plan deals. Moreover, JANA is aware of most of the potential investors having provided many similar companies in the past to companies treasure Cerberus, Veritas, BC Partners and Clayton, Dubilier and Rice.
So, what is TreeHouse price? In 2018, Put up provided part of its private label industrial to Thomas H. Lee Partners for over 10 instances EBITDA. A 10 instances a number of right here would indicate a six handle on a sale. Similar to their engagements in Whole Foods, ConAgra and Pinnacle, JANA has but again teamed up with world-class executives who they are nominating to the board. Whereas their expertise would no longer be as necessary in the context of a sale of the company, they may certainly assist evaluate a potential sale, and they have broad expertise in public markets as successfully, so they can assist rehabilitate the equity story in the meantime.
Ken Squire is the founder and president of 13D Monitor, an institutional research provider on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.