Hormel's $700 million bet on peanut butter

The company is buying the Skippy brand from Unilever. Hormel sees potential there, but the allergy stigma weighs down sales.

By Jonathan Berr Jan 3, 2013 11:20AM
Image: School lunch (Stockbyte/SuperStock/SuperStock)Hormel (HRL) will buy Skippy peanut butter from Unilever (UN) for $700 million -- about twice the price Wall Street had expected -- adding the iconic brand to its product line-up that includes Spam processed meat and Jennie-O Turkey products.

The deal is not a surprise. Unilever, an Anglo-Dutch conglomerate, has been trimming its portfolio of underperforming brands for months. As Bloomberg News noted in October, Skippy is a distant second to J.M. Smucker's (SJM) Jif in the U.S. peanut butter market. The sources the news service quoted expected the Skippy business to fetch between $300 million and $400 million.

Hormel sees some potential in Skippy and its 14 varieties. The Austin, Minn., company points out that the 80-year-old brand is the leader in the fast-growing category of natural peanut butter. Skippy, with annual sales expected at $370 million, is the top peanut butter brand in China. Peanut butter is a $2 billion market and is the second most popular sandwich ingredient behind ham in the U.S. The product, however, has an image problem.

As any parent with young children knows, there is a rising awareness of the dangers of peanut allergies. Many schools are "peanut-free zones" because some kids are so sensitive that they can't even be in the same room with peanuts. Some sufferers go into shock from even the tiniest exposure. In rare cases, the allergies can be fatal.

One study found that the incidence of peanut allergies doubled in children between 1997 and 2002, according to the Food Allergy and Anaphylaxis Network. Scientists aren't sure why more kids are sensitive to peanuts now than in previous decades. About 20% of children with peanut allergies do outgrow them. 

Wall Street likes the acquisition. Shares of Hormel were up in early trading because the company expects Skippy to be "modestly accretive" in fiscal 2013 and add 13 cents to 17 cents per share the following year.

--Jonathan Berr does not own shares of the listed stocks.  Follow him on Twitter @jdberr.

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Tags: Food
Jan 3, 2013 5:10PM
Jan 3, 2013 5:06PM
Lorenzo.  It also could be due to no exposure at an early age.   Skippy needs to look into the market in Mexico for its peanut butter.    Peanuts are cheap in Mexico but peanut butter is really expensive and is only available in tiny jars.  
Jan 3, 2013 4:53PM

"Skippy to be bought by maker of Spam "


The new product will be called Skam.

Jan 3, 2013 4:49PM
Food allergies to PB may stem due to non exposure to them at an early age.
Jan 3, 2013 4:42PM
I like Skippy "right out of the jar" also.  Jif is too sweet!
Jan 3, 2013 4:38PM
Jan 3, 2013 4:01PM
I like my skippy straight up right out of the jar!
Jan 3, 2013 3:44PM
Skippy is good on just about anything.  Try a little Skippy with corn syrup, banana's and cinnamon.
Jan 3, 2013 3:37PM
Skippy 'n sliced banana on Wonder white bread!  The sustenance of my youth.
spam &peanut butter sammiches  proff that god loves us and wants us to be happy
Jan 3, 2013 2:57PM
Don't go changing anything about SKIPPY PEANUT BUTTER it's good the way it is! 
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