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This case was prepared by Professor Maryanne M. Rouse, MBA, CPA, University of South Florida. Copyright ©
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In addition to allowing Heinz to sell its sluggish brands on an essentially tax-free basis, the
company noted that the smaller, less-diverse Heinz would become a more flexible, faster-growing
company focused on two strategic food platforms: meal enhancers (ketchup, condiments, sauces)
and meals and snacks (frozen and shelf-stable meals and snacks, food service frozen products, and
infant feeding in non-U.S. markets). The new Heinz would have a global structure, which the
ACQUISITION STRATEGIES
Heinz had pursued global growth via market penetration and product/market development
achieved principally via acquisition. In September 1999, Heinz acquired a 19.5% interest in The
Hain Food Group, Inc., for nearly $100 million, forming a strategic alliance for global production
of natural and organic foods and soy-based beverages. Hain was the leading U.S. natural and
organic foods company, with more than 3,500 products sold under such brands as Health Valley
cereals, bakery products, and soups; Terra Chips snacks; and Westsoy, the largest soy beverage
marketer. As part of the alliance, Heinz was to provide procurement, manufacturing, and logistics
expertise, with Hain providing marketing, sales, and distribution services.
Other recent acquisitions included the Borden Food Corporation’s pasta sauce, dry bouillon, and
soup business; the Linda McCartney and Ethnic Gourmet brands; and Anchor Food Products’
branded retail business, which included the licensing rights to the T.G.I. Friday’s brand of frozen
snacks and the Poppers brand of appetizers. The company also completed its acquisitions of
Delimex, a leading maker of frozen Mexican food products. Heinz had financed its acquisition
strategy principally via debt (in 2004, approximately $5.6 billion), resulting in a total debt to
equity ratio of 3.63, twice the industry average.
In fiscal 1999, the company began a growth and restructuring initiative named “Operation Excel.”
This multiyear program established manufacturing centers of excellence, focused on the product
portfolio, realigned the company’s management teams, and invested in growth initiatives. The
total cost of Operation Excel was estimated at $1.2 billion; pretax savings generated from the
program were estimated to be $70 million in fiscal 2000 and $135 million in fiscal 2001. Cost
savings were projected to grow to approximately $185 million in 2002 and $200 million in fiscal
2003 and thereafter. In the fourth quarter of fiscal 2001, the company announced a restructuring
initiative, named “Streamline,” designed to decrease overhead and other operating costs via such
steps as closure of the company’s tuna operations in Puerto Rico, consolidation of the company’s
North American pet food production, and the divestiture of the company’s U.S. fleet of fishing