Aussie favourite Arnott’s biscuits is facing big changes after its sale to a hostile US corporate raider.
That could be anything from the death of the Monte Carlo, to Arnott’s being back on the Australian stock exchange, or the off-shoring of some of the company’s operations.
The Australian Financial Review reported on Wednesday that private-equity company Kohlberg Kravis Roberts (KKR) will pay $3.1 billion to Arnott’s owners, US soup giant Campbell’s.
KKR is one of the largest – and most notorious – private equity companies, and has been involved in some of the world’s biggest buyouts.
The company had almost $200 billion worth of assets under management, according to a 2018 company report.
Its $44.5 billion buyout of US food giant Nabisco in 1989 earned it the moniker, “barbarians”, with the deal immortalised in the book, Barbarians at the Gate: The Fall of RJR Nabisco.
Specifically what it means for Arnott’s to be owned by an aggressive US-based business baron is hard to say – but it certainly won’t be business as usual.
High-profile stockbroker Roger Montgomery said while he could only speculate on the potential changes to Arnott’s, he expected KKR to go down the classic private equity route of “making improvements” to the business.
“They could sell off some physical assets, like property, they will reduce costs and possibly streamline their SKUs [or product lines],” Mr Montgomery said.
“They may even expand the business, but generally they [private equity companies] make changes to create a small difference in their EBIT [earnings before interest and taxes], which in turn creates a large difference in the value of the asset and, therefore, the business they can ultimately sell. It’s about making a business more efficient so it’s a more attractive proposition.”
Mr Montgomery said an example of an Australian business being bought by private equity and floated was Myer, which was bought by a US private equity firm in 2006 for $1.4 billion and floated in 2009 at $4.10 a share.
Myer shares closed at 0.54 cents on the ASX on Wednesday.
But investment market analyst and commentator Rod North believed it was unlikely Arnott’s would end up floated on the stock exchange, and was more likely to be on-sold to another foreign buyer by KKR.
“I would think that unlikely, despite the fact that we have a very strong sharemarket at the moment,” Mr North said.
“I have a feeling it is another one of those iconic Australian companies that is just going to remain in foreign hands.”
A more likely scenario is for the Campbell’s soup portion of the business to be split off and floated on the stock exchange, while Arnott’s is retained to sell to a new owner, he said.
As of 2018, Arnott’s had 3300 employees in Australia, including employees from all subsidiaries under the company’s control.
Sharemarket activist Stephen Mayne said KKR’s long track record had earned it a reputation as “hard-headed and ruthless dealers focused only on the bottom line”.
“I think we can expect them to do what all private equity companies do, and that is go in and really shake things up … hold it for three to five years and sell it off or float it,” Mr Mayne said.
“Changes to these companies happen on every level, so we might see off-shoring of operations, you might see plants being closed or products being made elsewhere. And whatever they do, they will be ruthless and take more risks than other businesses might take.”
Mr Mayne also noted that KKR this year entered the Australian pubs and pokies market.
It paid a reported $200 million to run 87 of Coles’ Spirit Hotels venues in Queensland, including about 3000 poker machines, while Coles retained management rights of 243 bottle shops in Queensland and 10 bottle shops attached to its hotels in Western Australia and South Australia.
The New Daily approached the Australian Manufacturing Workers Union for comment, but did not receive a reply before deadline.
The Campbell Soup Company said in a statement: “Arnott’s has not been sold. The process to divest Arnott’s and the rest of our international operations is ongoing. We do not comment on rumour and speculation.”