An activist with worth method takes the following step to show round a meals and beverage producer

TreeHouse Meals Inc. of Oak Brook, Illinois manufactures client packaged meals and drinks, together with a spread of shelf-stable, refrigerated, recent and frozen merchandise. Its product classes embrace drinks, salad dressings, beverage enhancers, pickles, sauces, cereals, pasta and dry dinners, cookies and crackers, retail bakery, aseptic merchandise, jams and different merchandise. The North American Retail Grocery phase sells branded and personal label merchandise to prospects inside the US and Canada. The Meals Away From Residence phase sells merchandise to meals service prospects, together with restaurant chains and meals distribution firms inside the US and Canada. The Industrial and Export phase contains the corporate’s co-pack enterprise and non-dairy powdered creamer gross sales to industrial prospects to be used in industrial functions.

Inventory Market Worth: $2.eight billion ($50.02 per share)

Proportion Possession:  7.51%

Common Value: $41.68

Activist Commentary: JANA makes use of a value-oriented and research-intensive method to particular scenario public safety investing, capitalizing on the transactional, authorized and finance backgrounds of its principals. JANA has intensive activist expertise. They use varied shareholder instruments together with letters, proxy fights, shareholder communications and lawsuits to attain their activist targets. Nonetheless, they’ve crafted a status for a ‘diplomacy first’ method. JANA additionally companions with extremely credentialed executives who deliver particular trade experience to the conditions and lend credibility to their arguments.

The agency doesn’t use activism merely to agitate boards and administration, however to implement sound, well-conceived enterprise methods that they strongly consider will improve shareholder worth.

Barry Rosenstein, managing companion at JANA, calls his activist technique “V cubed”. The three “Vs” are”(i) Worth: you might want to purchase in on the proper worth with a margin of security in order that JANA nonetheless has an excellent funding within the occasion the activism doesn’t work; (ii) Votes: you might want to know whether or not you’ve gotten the votes earlier than commencing a proxy struggle; and (iii) Number of methods to win: you might want to have multiple technique to reinforce worth.

On January 29, 2021, JANA notified TreeHouse Meals of their intent to suggest three nominees, Meredith Adler (Institutional Investor’s high ranked analyst within the meals and drug sector for 14 years), John Paul Gainor Jr. (former president and CEO of Dairy Queen) and Charles L. Myers (former portfolio supervisor at Constancy), for election on the firm’s 2021 Annual Assembly. JANA believes this represents a sexy funding alternative with TreeHouse almost three years right into a complete turnaround.

The agency has had constructive discussions with TreeHouse’s board and administration concerning avenues to resolve the corporate’s undervaluation and whole stockholder return, together with evaluating a sale of the corporate, operations, capital allocation, company governance and compensation practices.

JANA has intensive expertise on this trade, with a profitable monitor report within the client retail house and their involvement has led to gross sales of Pinnacle, PetSmart, Safeway, Complete Meals and ConAgra’s spinoff of its Lamb Weston enterprise. The agency is aware of TreeHouse properly as a big a part of its belongings have been acquired from ConAgra at JANA’s urging.

JANA companion Scott Ostfeld is presently on the board of ConAgra, however do not search for ConAgra to be a possible acquirer. It isn’t enthusiastic about personal label manufacturing, which is why it bought the Ralcorp enterprise to TreeHouse in 2015 for $2.7 billion, lower than three years from buying it for $5 billion.

TreeHouse is a pure play personal label enterprise, which is an space of super secular tailwinds. Personal label manufacturers are cheaper for customers, extra worthwhile for retailers and would not have the stigma of generic manufacturers of yesteryear (assume Complete Meals 365 or Costco’s Kirkland).  Consequently, shelf house has been migrating in direction of personal label house, with super development within the US, which isn’t near the penetration stage of Europe.

TreeHouse is a number of years into an intensive turnaround program that has helped it considerably enhance its product portfolio, go-to-market construction, and provide chain and repair operations. Nonetheless, it’s also a damaged fairness story in that these operational enhancements haven’t been mirrored within the inventory worth. As one of many solely pure play personal label producers, with no actual comps, TreeHouse will not be an important public firm. The chance is for it to be bought to personal fairness, who has a ton of dry powder and loads of strain to do offers. Furthermore, JANA is aware of a lot of the potential patrons having bought many comparable firms prior to now to companies like Cerberus, Veritas, BC Companions and Clayton, Dubilier and Rice.

So, what’s TreeHouse value? In 2018, Publish bought a part of its personal label enterprise to Thomas H. Lee Companions for over 10 occasions EBITDA. A 10 occasions a number of right here would suggest a six deal with on a sale. Just like their engagements in Complete Meals, ConAgra and Pinnacle, JANA has but once more teamed up with world-class executives who they’re nominating to the board. Whereas their experience wouldn’t be as essential within the context of a sale of the corporate, they might definitely assist consider a possible sale, they usually have super expertise in public markets as properly, to allow them to assist rehabilitate the fairness story within the meantime.

Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.