Hain-WhiteWave Acquisition Summary_Xuanjing Zhang
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Transcript of Hain-WhiteWave Acquisition Summary_Xuanjing Zhang
S
Acquisition Summary
By Xuanjing Zhang
Organic Food Market Overview and Trends
The size of organic food market: over $39 billion
Consumer demand for organically produced goods continues to show double-digit growth
CAGR: 11.27%
Hain Celestial– Company ProfileType: (NASDAQ: HAIN) Stock Price: $42.21
Headquarters: Lake Success, New York Phone: 1-800-434-4246
Sector: Service Employees: 6,307 Website: http://www.hain-celestial.comBusiness Description
The Hain Celestial Group, Inc. manufactures, markets, distributes, and sells organic and natural products in the United States, the United Kingdom, Canada, and Europe. Its grocery products include infant formula; infant, toddler, and kids foods; diapers and wipes; rice and grain-based products; flour and baking mixes; breads, hot and cold cereals, pasta, condiments, cooking and culinary oils, granolas, granola bars, and cereal bars; canned, chilled fresh, aseptic, and instant soups; Greek-style yogurt; chilies and packaged grains; and chocolates and nut butters, as well as plant-based beverages and frozen desserts, such as soy, rice, almond, and coconut. The company’s grocery products also comprise juices, hot-eating, chilled and frozen desserts, cookies, crackers, gluten-free frozen entrees and bars, frozen pastas and ethnic meals, frozen fruits and vegetables, cut fresh fruits, refrigerated and frozen soy protein meat-alternative products, tofu, seitan and tempeh products, jams, fruit spreads and jelly, honey, marmalade, and other food products. In addition, it provides snack products, such as potato, root vegetable, and other vegetable chips, as well as straws, tortilla chips, whole grain chips, pita chips, puffs, and popcorn; specialty teas, including herbal, green, black, wellness, rooibos, and chai tea lattes; ready-to-drink beverages comprising organic kombucha and chai tea lattes; personal care products consisting of skin, hair and oral care, deodorants, baby care items, acne treatment, body washes, and sunscreens; and poultry and protein products, such as turkey and chicken products. The company sells its products through specialty and natural food distributors, supermarkets, natural food stores, mass-market and e-commerce retailers, food service channels and club, and drug and convenience stores in approximately 70 countries worldwide.
Key ExecutivesMr. Irwin David Simon Founder, Chairman, Chief Executive Officer and Presi-
dent
Ms. Denise M. Faltischek Chief Compliance Officer, Exec. VP, Gen. Counsel and Corp Sec.
Mr. John Carroll Exec. VP and Chief Exec. Officer of Hain Celestial North America
Mr. Pasquale Conte Chief Financial Officer and Exec. VP
Mr. Gerald F. Amantea Ph.D.
VP of Technical Service
Brands
Hain Celestial– Company Profile Major Direct
Holders
Holder Shares Reported
SIMON IRWIN D 1,743,773 8-Feb-16
CARROLL JOHN 245,189 7-Mar-16
HEYER ANDREW R 127,010 19-Nov-15
FUTTERMAN JACK 120,150 20-Nov-14
ZILAVY LAWRENCE S 52,930 19-Nov-15Top Institutional Holders Holder Shares % Out Value*Vanguard Group, Inc. (The) 7,046,356 6.83 284,602,311Jennison Associates LLC 5,569,925 5.4 224,969,265Coatue Management, LLC 4,037,633 3.92 163,079,992BlackRock Fund Advisors 3,465,833 3.36 139,984,991Waddell & Reed Financial Inc. 3,170,681 3.08 128,063,802BlackRock Institutional Trust Company, N.A. 3,043,084 2.95 122,910,159FMR, LLC 2,930,261 2.84 118,353,238Bank of America Corporation 2,659,380 2.58 107,412,355State Street Corporation 2,633,945 2.55 106,385,035Goldman Sachs Group, Inc. 2,484,500 2.41 100,348,952
Top Mutual Fund Holders Holder Shares % Out Value*Prudential Jennison Mid-Cap Growth Fd 4,081,069 3.96 148,469,294Vanguard Small-Cap Index Fund 2,057,268 2 83,093,052Vanguard Total Stock Market Index Fund 1,873,422 1.82 75,667,512iShares Core S&P Midcap ETF 1,847,998 1.79 67,230,169Ivy Mid Cap Growth Fund 1,463,852 1.42 59,124,980Vanguard Small-Cap Growth Index Fund 1,263,872 1.23 51,047,788Victory Portfolios-Victory Munder Mid Cap Core Growth Fund 1,186,000 1.15 47,902,538Vanguard Extended Market Index Fund 1,077,817 1.05 43,533,027SPDR S&P Mid Cap 400 ETF Trust 1,034,453 1 41,781,555Fidelity Blue Chip Growth Fund 944,971 0.92 34,378,045
Valuation Measures Market Cap (intraday): 4.35B
Enterprise Value (Apr 16, 2016): 5.13B
Enterprise Value/Revenue (ttm): 1.83
Enterprise Value/EBITDA (ttm): 14.33
Revenue (ttm): 2.80B
EBITDA (ttm): 357.95M
Shares Outstanding: 103.10M
Sale in 6 years: CAGR 24.15%
Hain Celestial– Company Profile
WhiteWave– Company ProfileType: (NYSE: WWAV) Stock Price: $39.92
Headquarters: Denver, Colorado Phone: 1-303-635-4500
Sector: Consumer Goods Employees: 5,300 Website: http://www.whitewave.comBusiness Description
The WhiteWave Foods Company, a consumer packaged food and beverage company, manufactures, markets, distributes, and sells branded plant-based foods and beverages, coffee creamers and beverages, dairy products and organic salads, and fruits and vegetables in North America and Europe. It operates through three segments: Americas Foods & Beverages, Americas Fresh Foods, and Europe Foods & Beverages. The Americas Foods & Beverages segment offers plant-based foods and beverages, such as soymilk, almond milk, coconut and cashew milk, ice cream and frozen novelty products, plant-based yogurts, and Vega plant-based nutritional products under the Silk and So Delicious brands; dairy products, including Horizon Organic milk, yogurt, cheese, and other dairy products, as well as Horizon branded macaroni and cheese, and snack foods; and coffee creamers and ready-to-drink beverages under the International Delight, Dunkin Donuts, and LAND O LAKES brand names. The Americas Fresh Foods segment provides packaged salads and greens, fresh and frozen fruits and vegetables, dried fruits, and produce-based snacks under the Earthbound Farm brand. The Europe Foods & Beverages segment offers beverages using soy, almond, coconut, hazelnut, rice, oat, and other plant-based ingredients under the Alpro and Provamel brands; and plant-based alternatives to yogurt, culinary creams, desserts, and margarine. The company sells its products to grocery stores, mass merchandisers, club stores, convenience stores, and health food stores, as well as various away-from-home channels, including restaurants and foodservice outlets. It markets its products through direct sales force, independent brokers, regional brokers, and distributors, as well as through a network of partners.
Key Executives
Mr. Gregg L. Engles Chairman, Chief Exec. Officer and Chairman of Exec. Committee
Mr. Blaine E. McPeak Chief Operating Officer
Mr. Bernard P.J. Derychere Exec. VP and President of Europe Food & Beverage
Mr. Kevin C. Yost US Group President for Americas Food & Beverage
Mr. Gregory Stephen Chriten-son
Chief Financial Officer and Exec. VP
Brands• North America: Silk®, So Delicious® and
Vega™ plant-based foods and beverages, International Delight® and LAND O LAKES® coffee creamers and beverages, Horizon Organic® and Wallaby Organic® premium dairy products and Earthbound Farm® organic salads, fruits and vegetables
• Europe: Alpro® and Provamel®
• China: Silk® ZhiPuMoFang brand.
WhiteWave– Company ProfileMajor Direct Holders Holder Shares ReportedENGLES GREGG L 2,136,091 1-Apr-16HAECKER KELLY J 300,239 1-Mar-16HARDIN JOSEPH S JR 188,320 17-Feb-16ZANETICH THOMAS N 167,939 8-Mar-16MCPEAK BLAINE E 149,273 17-Feb-16
Top Institutional Holders Holder Shares % Out Value*Vanguard Group, Inc. (The) 12,438,275 7.03 483,973,280Price (T.Rowe) Associates Inc 7,878,992 4.45 306,571,578Artisan Partners Limited Partnership 6,849,965 3.87 266,532,138BlackRock Fund Advisors 6,068,284 3.43 236,116,930State Street Corporation 5,371,428 3.04 209,002,263BlackRock Institutional Trust Company, N.A. 5,202,922 2.94 202,445,695Deutsche Bank Aktiengesellschaft 5,065,540 2.86 197,100,161American Century Companies, Inc. 4,650,841 2.63 180,964,223Times Square Capital Management, LLC 3,620,930 2.05 140,890,386Citadel Advisors LLC 3,488,235 1.97 135,727,223
Top Mutual Fund Holders Holder Shares % Out Value*Price (T.Rowe) Mid Cap Growth Fund 4,500,000 2.54 175,095,000Artisan Mid-Cap Fund 3,957,975 2.24 154,004,807Vanguard Total Stock Market Index Fund 3,222,132 1.82 125,373,156iShares Core S&P Midcap ETF 3,162,283 1.79 119,376,183Vanguard Mid-Cap Index Fund 1,886,822 1.07 73,416,244Vanguard Extended Market Index Fund 1,829,201 1.03 71,174,210SPDR S&P Mid Cap 400 ETF Trust 1,770,288 1 68,881,906Vanguard Small-Cap Index Fund 1,760,409 1 68,497,514Victory Portfolios-Victory Munder Mid Cap Core Growth Fund 1,506,200 0.85 58,606,242Deutsch Investment Tr-Deutsche Core Equity Fd 1,228,757 0.69 50,354,461
Valuation Measures Market Cap (intraday): 7.06BEnterprise Value (Apr 16, 2016): 8.96BEnterprise Value/Revenue (ttm): 2.32Enterprise Value/EBITDA (ttm): 19.82Revenue (ttm): 3.87BRevenue Per Share (ttm): 22.03EBITDA (ttm)6: 452.23MShares Outstanding: 176.86M
Sale in 5 years: CAGR: 18.81%
WhiteWave– Company Profile
Sales by Geography
United StatesIn-ter-na-tional
Country Sales %
United States 82%
International 18%
Hain Celestial– Recent Acquisitions
WhiteWave– Recent Acquisitions
Summary of Acquisition
Transaction Summary
Transaction Date
Acquirer Target
Companies Hain Celestial WhiteWave
Fully Diluted Shares Outstanding (FDSO) 102.6 176.34
Current Share Price $41.17 $38.79
Offer Price for Target - WhiteWave $46.55
Premium for Target Current Share Price 20%
Target Equity Value Offered - WhiteWave $8,208.46
Target Implied Transaction Value - WhiteWave $10,300.26
Scenario Analysis- All Equity Consideration for Target Equity - WhiteWave Percentage Per Share TotalCash Component 0.00% $0.00 $0.00 Equity Component (Acquirer Shares Issued) - Hain Celestial 100.00% $46.55 $8,208.46 Total 100.00% $46.55 $8,208.46 Cash Component Sources Cash from Balance Sheet $177.1 Interest Rate earned on Cash 4.50%New Debt ($177.1)Interest Rate on New Debt 7.00% Equity Component Sources Exchange Ratio 1.13xAcquirer Shares Issued - Hain Celestial 199.4 Pro-forma Shares Outstanding - Combined 302.0 Pro-forma Ownership Acquirer Shareholders - Hain Celestial 33.98%Target Shareholders - WhiteWave 66.02%
1. Acquirer shares to issue is computed by Equity component/current share price of Hain.
2. Exchange ratio= # of shares outstanding of WhiteWave/Acquirer shares issued- Hain. This ratio means the relative number of new shares that will be given to existing shareholders of WhiteWave
3. Acquirer shareholders ratio of Hain= Current # shares outstanding- Hain/Pro-forma shares outstanding
Scenario Analysis- All Equity
1. In this analysis, synergies is not considered.
2. The calculation of goodwill and annual depreciation of write-ups is on next page.
Accretion/Dilution Results
FYE December 31 2015A 2016P 2017PRevenue Hain Celestial $2,800.70 $3,506.71 $4,390.68 WhiteWave $3,866.30 $4,274.80 $4,615.90 Combined $6,667.00 $7,781.51 $9,006.58 EBITDA Hain Celestial $381.20 $469.90 $588.35 WhiteWave $488.70 $575.50 $654.20 Combined $869.90 $1,045.40 $1,242.55 Net Income Hain Celestial $195.99 $248.32 $311.94 WhiteWave $188.69 $239.83 $280.39 Combined $384.68 $488.15 $592.32 Standalone EPS Hain Celestial $1.91 $2.42 $3.04 WhiteWave $1.07 $1.36 $1.59 Pro-forma EPS Combined Net Income $384.68 $488.15 $592.32 Plus: Expected Post-Tax Synergies $0.00 $0.00 $0.00 Less: Amortization of Intangibles ($21.26) ($21.26) ($21.26) Less: Depreciation of PP&E ($34.83) ($34.83) ($34.83) Less: Additional Net Interest Expense $14.77 $14.77 $14.77 Proforma Net Income $343.35 $446.82 $551.00 Proforma Shares Outstanding 302.0 302.0 302.0 Earnings Per Share $1.14 $1.48 $1.82 % - EPS Accretion (Dilution) (40.5%) (38.9%) (40.0%)$ - EPS Accretion (Dilution) ($0.77) ($0.94) ($1.22)Accretive / Dilutive Dilutive Dilutive Dilutive
Scenario Analysis- All Equity
Calculation of Goodwill and Annual Depreciation of Write-Ups
Book Value of Target Equity - Exisiting Goodwill (Net Identifable Assets) $6,793.16
Goodwill $1,211.97
Gross Intangible Assets - WhiteWave $1,062.80
Intangible Write-Up % 10%
Intangible Write-Up Amount $106.28
Amortization Period (Years) 5
Yearly Amortization of Intangibles $21.26
Gross PP&E - WhiteWave $1,741.70
PP&E Write-UP % 10%
PP&E Write-UP Amount $174.17
Depreciation Period (Years) 5
Yearly Depreciation of PP&E $34.83
Deferred Tax Liability 77.12
Scenario Analysis- All Cash
1. Acquirer shares to issue is computed by Equity component/current share price of Hain.
2. Exchange ratio= # of shares outstanding of WhiteWave/Acquirer shares issued- Hain. This ratio means the relative number of new shares that will be given to existing shareholders of WhiteWave
3. Acquirer shareholders ratio of Hain= Current # shares outstanding- Hain/Pro-forma shares outstanding
Consideration for Target Equity - WhiteWave Percentage Per Share TotalCash Component 100.00% $46.55 $8,208.46 Equity Component (Acquirer Shares Issued) - Hain Celestial 0.00% $0.00 $0.00 Total 100.00% $46.55 $8,208.46 Cash Component Sources Cash from Balance Sheet $177.1 Interest Rate earned on Cash 4.50%New Debt $8,031.4 Interest Rate on New Debt 7.00% Equity Component Sources Exchange Ratio 0.00xAcquirer Shares Issued - Hain Celestial 0.0 Pro-forma Shares Outstanding - Combined 102.6 Pro-forma Ownership Acquirer Shareholders - Hain Celestial 100.00%Target Shareholders - WhiteWave 0.00%
Scenario Analysis- All Cash
1. In this analysis, synergies is not considered.
2. The calculation of goodwill and annual depreciation of write-ups is on next page.
Accretion/Dilution Results
FYE December 31 2015A 2016P 2017PRevenue Hain Celestial $2,800.70 $3,506.71 $4,390.68 WhiteWave $3,866.30 $4,274.80 $4,615.90 Combined $6,667.00 $7,781.51 $9,006.58 EBITDA Hain Celestial $381.20 $469.90 $588.35 WhiteWave $488.70 $575.50 $654.20 Combined $869.90 $1,045.40 $1,242.55 Net Income Hain Celestial $195.99 $248.32 $311.94 WhiteWave $188.69 $239.83 $280.39 Combined $384.68 $488.15 $592.32 Standalone EPS Hain Celestial $1.91 $2.42 $3.04 WhiteWave $1.07 $1.36 $1.59 Pro-forma EPS Combined Net Income $384.68 $488.15 $592.32 Plus: Expected Post-Tax Synergies $0.00 $0.00 $0.00 Less: Amortization of Intangibles ($10.63) ($10.63) ($10.63) Less: Depreciation of PP&E ($17.42) ($17.42) ($17.42) Less: Additional Net Interest Expense ($401.81) ($401.81) ($401.81) Proforma Net Income ($45.18) $58.29 $162.47 Proforma Shares Outstanding 102.6 102.6 102.6 Earnings Per Share ($0.44) $0.57 $1.58 % - EPS Accretion (Dilution) (123.1%) (76.5%) (47.9%)$ - EPS Accretion (Dilution) ($2.35) ($1.85) ($1.46)Accretive / Dilutive Dilutive Dilutive Dilutive
Scenario Analysis- All Cash
Calculation of Goodwill and Annual Depreciation of Write-Ups
Book Value of Target Equity - Exisiting Goodwill (Net Identifable Assets) $6,793.16
Goodwill $1,218.99
Gross Intangible Assets - WhiteWave $1,062.80
Intangible Write-Up % 10%
Intangible Write-Up Amount $106.28
Amortization Period (Years) 10
Yearly Amortization of Intangibles $10.63
Gross PP&E - WhiteWave $1,741.70
PP&E Write-UP % 10%
PP&E Write-UP Amount $174.17
Depreciation Period (Years) 10
Yearly Depreciation of PP&E $17.42
Deferred Tax Liability 84.14
Synergy Analysis- All Equity
First, we should calculate the breakeven pretax synergies:
1. Breakeven pretax synergies= (Combined EPS-Hain standalone EPS)* Combined Pro-forma shares outstanding/ (1-Effective tax rate)
2. For effective tax, I use the average of effective tax rate of Hain and WhiteWave. Thain= 22.2%, TWhiteWave=32.8%
Breakeven Pretax Synergies $391.72 $506.28
% of Revenue 5.03% 5.62%
% of EBITDA 37.47% 40.74%
Synergies 2016P 2017P
Expected Pre-tax Annual Synergies $0.00 $0.0
Effective Tax Rate 27.5% 27.5%
Expected Post-Tax Annual Synergies $0.0 $0.0
Synergy Analysis- All Equity
1. The breakeven analysis shows that the total synergies of 2016P and 2017P are $391.72 million and $506.28 million.
2. The total executive compensation as reported last year is around $21 million. This amount is quite small compared with what we need to eliminate dilution.
3. The most likely synergy should be revenue increase and operating expense margin improvement.
4. After acquisition, WhiteWave can utilize the international business channel of Hain. So WhiteWave can expand their business much beyond their current foreign market- Canada.
5. So this acquisition can both increase revenues of Hain and WhiteWave, in the meanwhile reducing the operating cost of two firms.
Source of Synergies
Hain Celestial impact WhiteWave impact
More international distribution channel
Unique product: Plant based food and beverage
Much higher growth in revenue and profit
Reduced executive compensation
Global expansion: China and South Africa
Talent pool of food experts reduces Hain’s dependence on one personnel
Research & Development on new product
Own direct sale force
Recommendations
1. For Hain Celestial, I would not recommend to acquire WhiteWave by using all equity because Hain will only have 33.98% shares of combined firm and will loss control of this combined firm.
2. I would not recommend to use all cash Although the synergies required is much less than former two methods, only $262.11M in 2016P, the pressure of new debt payment is quite uncomfortable.
3. So, I would recommend to use 50-50 cash-equity method, the synergies required to eliminate dilution are slightly less than all equity method’s (in 2016P, from $391.72M to $352.75M). Also, Hain can have 50.82% ownership of combined firm.
Questions?
Thank you!