Pillsbury seeks Pet's 'Yellow Wall' of Mexican foods

January 10, 1995|By New York Times News Service

Pillsbury Inc. wants to capture what grocery marketers call the Yellow Wall: the formidable frontage in store aisles devoted to the taco shells, sauces and beans of Old El Paso brand, which is the leader in the Mexican-food category.

Yesterday, Pillsbury's parent, Grand Metropolitan PLC, offered to buy Pet Inc. of St. Louis, the maker of both Old El Paso and Progresso soups, for $2.6 billion, or $26 a share.

The friendly deal, if it goes through, will introduce the Yellow Wall to the Jolly Green Giant, a trademark that Pillsbury owns, and the company will become an instant contender with strong brands in two of the strongest categories on the supermarket shelves: the ever-more-mainstream Mexican-food category and ready-to-serve soups.

The announcement comes six weeks after the Campbell Soup Co. cashed in on the nation's salsa craze, acquiring Pace Foods Ltd. of San Antonio, the world's largest producer of Mexican sauces, for $1.12 billion.

Many analysts felt the Campbell-Pace deal made a Pet sale inevitable, since Pet would need more resources to compete with Campbell, which was precluded by antitrust considerations from buying Pet.

Now the stage is set for a head-to-head battle between Pillsbury and Campbell in both the Mexican segment and ready-to-serve soups, both high-profit-margin categories.

H. J. Heinz Co. and Conagra were both believed to have been recent Pet suitors. Analysts termed Grand Met's $2.6 billion offer a high but not exorbitant price.

Miles Marsh, chairman and chief executive of Pet, said in an interview that Pet's board was unanimously recommending the deal to shareholders. "The resources that Grand Met can bring to Pet are very attractive," he said.

Wall Street apparently shared that view. Pet's stock closed up $5.375, at $25.50, on the New York Stock Exchange. Grand Met's American depository receipts lost 87.5 cents, to $24, on the New York Stock Exchange.

In the deal, which represents a 29 percent premium over Pet's Friday close of $20.125, a subsidiary of Pillsbury will make a cash tender offer for all of Pet's common stock tomorrow.

"It's a good deal for Pet shareholders," said Terry Bivens, an analyst with Argus Research. "Campbell's purchase of Pace increased Pet's willingness to make a deal. It makes sense for Pet to cash out now to someone with deeper pockets."

Pet, founded in 1885, had 1994 sales of $1.6 billion and operating income of $223 million; its 5,700 employees work in five countries.

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