Pinnacle Foods Ipo

aggrandizement Foods Inc. Initial Public Offering MACKK Consulting assort BSAD 444. 20 April 1st, 2013 Company History meridian Foods Group is a food packaging company specializing in shelf stable and frozen food categories. The company was formed in 1998 as Vlasic Foods International, acquiring several(prenominal) food-manufacturing brands such as Swanson TV dinners and Open Pit from the Campbell Soup Company. upper sides portfolio of iconic brands dates spinal column in existence to the 1800s. The earliest brand owned by acme Foods, Armour Star, has existed since 1867 when Philip Armour showed it as Armour and Company.Armour was the early company to produce give the axened meat and was once Chicagos virtually important business, helping to make the city and its stockyards the center of the American meatpacking industry. Throughout the late 1800s and 1900s, iconic brands such as Duncan Hines, Log Cabin, Aunt Jemima and Hungry Man were introduced and now ar a straggle o f the Pinnacle Foods name. Pinnacle Foods acquired break of the day Foods in 2003 when the companys wellness was in jeopardy collect(p) to lawsuits in 2001.Ian Wilson, a former executive with Coco-Cola, founded Aurora Foods in 1995 using the company to purchase caravan de Kamp Seafood from Pillsbury along with several different brands. As a result of major lawsuits in 2001, Wilson and other Aurora executives plead guilty to securities fraud for misrepresentation of the companys financial statements. Jim Smith replaced Wilson as chief operating officer of Aurora Foods until 2002, at which time motions were set in place that lead to Pinnacles achievement of Aurora. Pinnacle closed Auroras Missouri offices and moved them to Cherry Hill, New Jersey where the before long remain.In 2007 The Blackstone Group, a New York City private comeliness firm, bought Pinnacle Foods for $2. 16 billion (G. S. , 2007). Since then, Pinnacle Foods has acquired Birds nitty-gritty Foods, Inc. , ad ding a mix of frozen and specialty brands to its already iconic portfolio. Industry Overview * Ashley Company Overview Today circle Magazine ranks Pinnacle in the Top 1,000 Companies with over 4,000 employees. Pinnacles products can be found in more than 85% of American households and are leaders in their respective categories, holding the first or second market share position in 10 of the 12 of the categories in which they compete.Pinnacle before long focuses on growing their leadership brands while reinvigorating their foundation brands. Their leadership brands are those with the most potential for maturement and innovation. These include brands such as Vlasic, Duncan Hines, and Ms. Butter-Worths. Pinnacle prides themselves on debuting category breakthroughs with these brands. These leading brands are used prominently in marketing campaigns that celebrate their robust vitality. Pinnacles foundation brands are those that have a strong and recognizable reputation in most house holds.Families already know and love these brands such as Aunt Jemima Frozen Breakfast, Open Pit, and Hungry-Man. Pinnacle strives to procession the bar with these familiar foods through new flavours and wellness benefits. Pinnacle must be innovative with these familiar brands to ensure they remain as popular as they currently are. Financial Overview Financially, Pinnacle has experienced minimal growth over the know year. utmost gross revenue change magnitude marginally from $2. 47 billion in 2011 to $2. 48 billion in 2012 and in trade union America specifically, net sales grew a meager 1% from $2. 07 to $2. 08 billion.EBIT was $284 one thousand thousand in 2012, after better- run acrossing effect to $66 million in pre-tax charges related to restructuring and refinancing. This restructuring as well impacted net shekels, as Pinnacle had to pay $51 million in after-tax charges and was left with $53 million in net earnings. in spite of these charges, this net income shows a st rong recovery from 2011 when the company suffered a net loss of $47 million. quantity capital expenditures were $78 million in 2012, devour from $117 million in 2011. These expenditures include footprint consolidation. A summary of these figures can be seen below in designate 1.Exhibit 1 Pinnacle Financial Statements It can be seen in Exhibit 1 that Pinnacle has a substantial essence of acquisition, merger and other restructuring charges. These charges are primarily related to Pinnacle closing facilities in Washington, New York, Wisconsin, and Delaware. A complete segmentation of these expenditures has been included in exhibit 2. Exhibit 2 Acquisition, merger, and other restructuring charges One of the problems that Pinnacle currently faces is their wide amount of debt. They have roughly $550 million of a term lend that is due in 2014.This resulted in Pinnacle entering the market with a $300 million incremental term loan last year, dubbed F, with proceeds to be used to help r epay the $550 million. Pinnacle has an additional $400 million E term loan that was syndicated earlier in 2012. This loan matures in October 2018 and is covered by a one hundred one soft call premium until April 17, 2013. Proceeds from that deal were used to issue $199 million in 10. 625% subordinated notes due in 2017. Altogether Pinnacle has about $641 million outstanding under the extended term loan due in 2016 (Bisbey, 2012).This is one of the primary reasons for Pinnacles IPO, as will be discussed later on in the report. The rest period sheet below summarizes Pinnacles debt obligations as well as their assets and equity. Exhibit 3 Pinnacles Balance Sheet for 2011 and 2012 After performing a two-finger analysis of this balance sheet it can be concluded that Pinnacle has not made any drastic changes over the past two years. Assets have decreased slightly but that was coupled with a decrease in liabilities by roughly the same amount which is reasonable.Exhibit 4 is a portion of Pinnacles hard currency flow statement that helps explain these changes in the balance sheet. Pinnacles cash flows from financing increased 212% between 2011 and 2012, the vast majority of this expenditure being the repayment of debt. By making a arrive of loan repayments, Pinnacle decreased their cash and thitherfore their assets, while withal reducing their liabilities. Exhibit 4 Cash Flows from Financing Activities Ratio 2012 2011 Return on Equity 5. 9% -5. 54% Return on Assets 1. 19% -1. 05% Return on Sales 11. 46% 7. 4% Current Ratio 2. 11 2. 17Quick Ratio 1. 04 1. 17 Debt-to-Equity Ratio 3. 95 4. 26 Exhibit 5 2012 Ratio compendium of Pinnacle Group Inc. These ratios IPO The food-industry sector is changing due to increased globalization, vertical integration, and mergers and acquisitions. This is forcing many firms to look to alternatives to debt financing in order to keep up with the competition. The public equity market is a valuable option in financing the growth necessary to survive amongst competitors, as it offers access to more equity capital than could be attained from other sources (Stegelin & Houston, 2007).With millions of dollars in debt obligations coming up due in the future(a) few years, it is understandable that Pinnacle is having an Initial Public Offering to raise capital. This follows suit with research that has shown that as a food-industry firms leverage ratio increases, the likelihood of an IPO increases as well (Stegelin & Houston, 2007). It has also been noted that the probability of a food-industry firm IPO decreases with the firms size and age (Stegelin & Houston, 2007). Pinnacle is currently 15 years old which is incredibly young compared to industry leaders Kraft and Kellogg which are both over 100 years old.This could be a contributing factor to why they are wanting to go public. This IPO will follow 13 other offerings in 2013 backed by financial sponsors such as private-equity firms. These 13 other offerings can be used to loosely auspicate the achiever of Pinnacles IPO, as Pinnacle is backed by private-equity firm Blackstone. These IPOs were successful, seeing an clean first-day hand of 22% and are up an average of 21% from their listing dates. These results are promising in comparison to 30 other IPOs at large, showing an average 15% first-day gain and a gain of 19% from the listing dates (Driscoll, M. 2013). Another important benchmark is the IPOs of other food sellers. There were mixed results regarding the success of food seller IPOs in 2012. The health food sector showed strength with natural food companies Annies Inc. , Natural Grocers by Vitamin Cottage Inc. , and WhiteWave Foods Co. performing well since their IPOs. Annies shares have more than doubled since being listed last March while the value of Natural Grocers has risen over 40% since their listing in July (Driscoll, M. , 2013). On the other hand, Roundys Inc. and Amira Nature Foods Ltd. have underperformed since their IP Os.Roundys is a Midwestern supermarket chain and Amira is a rice seller, both of which are down about 20% from their offerings in October and February respectively (Driscoll, M. , 2013). Since Pinnacle offers processed, box foods, benchmarking their success from the natural, organic food IPOs is not very reliable. With people becoming more and more health conscious these days, it is not surprising that these health food companies found success in their IPOs. Although Pinnacle does incline the frozen vegetable brand Birdseye, they also carry a number of brands that would not be classified ad as healthy.Of the aforementioned companies, the most reliable comparison for Pinnacle would likely be with Roundys, the supermarket chain. Supermarkets sell a wide variety of processed and pre-packaged foods, and are the medium through which Pinnacles brands are sold. However, there is still not a strong correlation between the two firms. On March 27th, 2013, Pinnacle announced their Initial Pub lic Offering of 29,000,000 shares of common stock at $20 per share. Pinnacle also granted the underwriters a 30-day option to purchase an additional 4,350,000 shares at the IPO price.It is estimated that Pinnacle will raise net proceeds of about $545. 2 million after subtracting underwriting costs. Pinnacle plans to use the entirety of these earnings to pay off some of their debt. They plan to redeem $465 million in aggregate principal amount of 9. 25% Senior Notes due in 2015 at a redemption price of 100%. The residual of their IPO proceeds, along with some cash on hand, will be used to repay $119 million of the senior secured term loan B facility maturing in April 2014. IPO Success Pinnacle Foods had a very successful IPO on March 28, 2013.The company issued a total of 33,350,000 shares of common stock, including the entirety of the additional 4,350,000 shares that the underwriters had the option to purchase. Pinnacle now has a total of 117. 2 million common shares outstanding. Net of all underwriting discounts, Pinnacle raised $627 million through this offering, which is $81. 8 million more than they had initially anticipated. Pinnacle will couple this money with $40 million of cash on hand to pay down $667 million in outstanding debt. Instead of their initial plans of repaying $119 million of their term loan B due next April, they will repay $202 million.Exhibit 6 Pinnacle Foods Stock Performance Since IPO as Compared to S&P vitamin D As can be seen in Exhibit 6, Pinnacle shares (blue line) seem to be experiencing steady growth since their IPO on March 28, 2013. This is especially positive since the S&P 500 (brown line) seems to be doing quite the opposite. Pinnacle shares have increased from their low of $22. 15 to a high of $24. 61, an 11% increase. References Driscoll, M. (2013, Mar 25). Pinnacle is hoping investors feel hungry. Wall Street Journal. Retrieved from http//search. proquest. com/docview/1319182111? accountid=13803 G. , S. S. (2007).Black stone Chows Down On Pinnacle Foods Group. (cover story). amply Yield Report, 18(7), 1-15. Stegelin, F. , & Houston, J. (2007). Factors Influencing the Initial Public Offering (IPO) Decision of Food dissemination Firms. Journal Of Food Distribution Research, 38(1), 215-216. Stratton, K. (2012). Pinnacle Foods Group Gets 55,000SF Update in Parsippany. National Real Estate Investor Exclusive Insight, 8. Bisbey, A. (2012). Pinnacle Foods shop $300M Incremental TL. High Yield Report, 23(34), 28. PRNewswire (2013, Apr 3). Pinnacle Foods Inc. Announces Successful Closing of its Initial Public Offering. ttp//investors. pinnaclefoods. com/phoenix. zhtml? c=223400&p=irol-newsArticle&ID=1803206& spotlight= PRNewswire (2013, Mar 6). Pinnacle Foods Finance LLC Reports Fourth Quarter Fiscal 2012 Results. http//investors. pinnaclefoods. com/phoenix. zhtml? c=223400&p=irol-newsArticle&ID=1795035&highlight= Business Wire (2013, Mar 27). Pinnacle Foods Inc. Announces Pricing of its Initial Public Offering. http//investors. pinnaclefoods. com/phoenix. zhtml? c=223400&p=irol-newsArticle&ID=1801326&highlight= http//www. rttnews. com/2088372/pinnacle-foods-raises-net-proceeds-of-627-mln-i