Beatrice Cos. Inc., the giant Chicago-based consumer products company that markets Peter Pan peanut butter and Tropicana orange juice, received an unsolicited $5.4 billion takeover bid yesterday from an investor group led by Kohlberg Kravis Roberts & Co., the New York firm specializing in leveraged buyouts.
Wall Street sources said the investor group bidding for Beatrice includes Donald Kelly, the former chairman of Esmark Inc. Kelly left Esmark last year after that consumer products company was acquired by Beatrice for $2.7 billion. The investor group has retained Drexel Burnham Lambert Inc. to help finance the proposed acquisition, and "financing has been arranged," sources said.
Kohlberg Kravis will deliver a letter to Beatrice today offering to acquire the company for a combination of cash and securities worth $45 a share, sources said. Kohlberg Kravis is expected to invite members of Beatrice management to participate as investors in the buyout, a maneuver that will give them an edge over consumer products companies that also might bid for Beatrice.
Sources close to Kohlberg Kravis said the takeover bid includes a promise to keep Beatrice's headquarters in Chicago and to "basically keep the company intact and run it as a decentralized holding company."
The takeover bid was not a surprise. Following unusually heavy trading in Beatrice stock last week, there were published reports that Kohlberg Kravis was rumored to be preparing a takeover bid.
Because of widespread Wall Street takeover rumors, the price of Beatrice stock has been rising steadily in the last several weeks. Beatrice, the most actively traded stock on the Big Board yesterday, closed at 44 3/8, up 2 1/8.
If Kohlberg Kravis succeeds with its bid, this would be the largest leveraged buyout ever. In this leveraged buyout, Beatrice shares owned by the public would be acquired by Kohlberg Kravis using a combination of cash and borrowed funds. Kohlberg Kravis would repay the debt with Beatrice cash flow and the sale of some Beatrice assets.
Kohlberg Kravis, generally acknowledged to be the premier leveraged-buyout firm, has raised billions recently from investors eager to participate in its deals. The firm is in the process of completing the $2.5 billion acquisition of Storer Communications Corp., the Florida-based broadcaster.
"I would expect another bid for Beatrice will come in between $47 and $50 a share," Merrill Lynch analyst William Maguire said yesterday. "The company is going to be sold, and I think it will be over $45 a share."
Beatrice, weakened by controversy, has been mentioned as a takeover target since August when former chairman James L. Dutt was ousted by the company's board of directors. He was replaced by William W. Granger Jr., 66, a former Beatrice executive who Wall Street analysts expected to guide the company through a difficult transition period.
Before Granger's appointment, more than three dozen of Beatrice's top 60 officers had left the company since Dutt became chairman in 1980, and the company had been struggling to reduce more than $2 billion in debt on its books as a result of Dutt's aggressive acquisition campaign. Beatrice also had been engaging in a controversial and costly advertising program designed to increase recognition of the Beatrice name and make it easier for the company to market some of its regional brands nationally.
Amid speculation about a takeover bid, Beatrice recently announced plans to try to sell several subsidiaries, including Avis car rental. But it is more likely now that all of Beatrice will be sold to a single buyer, such as Kohlberg Kravis, who then will sell certain operations.
Beatrice, which had sales of $12.6 billion and net income of $479 million in the year ended Feb. 28, markets a variety of products under famous brand names, including Hunt's, Wesson, Max Factor, Danskin, Swift, Butterball, Playtex and La Choy.
Beatrice is one of several of the nation's leading consumer products companies to become the target of takeover bids, as the merger wave sweeping the nation has moved from the media industry to packaged goods. Philip Morris Inc. recently agreed to acquire General Foods Corp. for more than $5.6 billion, while Procter & Gamble agreed to acquire Richardson-Vicks Inc. for $1.2 billion.