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Pinnacle to Buy Boulder Brands In Quest to Reach LOHAS & Millennial Consumers

Carol Ortenberg

Pinnacle Foods Inc. announced today that it would purchase Boulder Brands for approximately $710 million dollars. While Pinnacle has a large stable of classic American brands, including Birds Eye, Aunt Jemima, Duncan Hines and Vlasic, the acquisition will add a slate of “better-for-you” products popular with the growing segment of LOHAS shoppers as well as provide an entrance into refrigerated food category. That is, if it can right the ship at Boulder, which recently reported its second straight quarter of falling sales.

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Under the terms of the agreement, Pinnacle will acquire all outstanding shares of Boulder at a value of $11 per share. The deal is valued at $975 million, including net debt of $265 million, valuing the company at a 9.2% premium over Monday’s closing stock price.

Over the past few months Boulder has made it clear that the company was seeking a buyer. On a call today with analysts, Pinnacle CEO Robert Gamgort expressed that Pinnacle had been interested in Boulder for quite some time, but had waited until the valuation fell within a more acceptable range for Pinnacle.

Much of the call focused on analyst questions regarding two segments of the Boulder portfolio: Gluten-free brands and the Smart Balance line of spreads.

Smart Balance, one of the first trans-fat free spreads, has struggled in recent years as consumers turn away from oil based spreads and return to “cleaner” products with limited ingredients, such as butter. Gamgort believes there is room to improve Smart Balance’s sales by cutting back on the number of SKUs offered, providing more support behind the brand, and re-educating consumers about the product’s benefits.

The investment in the brand is valuable because, as Gamgort said, certain SKUs are seeing great velocity and, “although it’s been growth challenged, it’s a very profitable segment.” So any work on the line will have strong ROI. The line also gives Pinnacle an entrance into the refrigerated segment.

Many of the analysts seemed to express doubt about the trendiness of the gluten-free market and its ultimate size. To that, Gamgort said, “Make no mistake, this is not a fad. This is a sustainable trend that’s driven by a real consumer need.” While one analyst compared current gluten-free foods to the “straw you feed your cows,” Gamgort was quick to cite frozen pizzas as a gluten-free category that tastes great as well.

Pinnacle will also invest in R&D to continue improving flavor for both Udi’s and Glutino products. Also noted as a focus of the next generation of gluten-free products would likely be the inclusion of other food trends, such as ancient grains and so-called “clean ingredients.”

As part of this process, Gamgort said that Pinnacle had done extensive research to better understand the gluten-free market. One major finding was that consumers who avoided gluten see dedicated gluten-free brands as more trustworthy than conventional brands that simply produce a gluten-free version. Gamgort also reported that gluten-free food has grown in sales by 100-150 percent in the past years, and that 6.5 percent of all food sold is labeled as gluten-free.

Across both the gluten-free lines and Smart Balance, Gamgort expressed that there needed to be a pruning back and focus on core products. Some the vast portfolio he attributed to retailers offering more shelf space. In his opinion, Boulder should have “said no thank you” to some offers because they didn’t “have the innovation to fill it in a meaningful way.”

Frozen food brand Evol was called out as a highlight of the Boulder portfolio and proof that the frozen food category isn’t dead just yet. The line, Gamgort believes, is proof that Millennial consumers will pay a premium price for a convenient, frozen food that tastes great and has clean, easy to understand ingredients.

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Pinnacle said that the company will retain the Boulder headquarters of Boulder Brands in an effort to stay in touch with a city that’s in tune with the health and wellness food world.

There were no details available yet concerning the fate of Boulder Brands Investment Group (BBIG), which has bet on brands like Epic meat bars, Suja juice and Temple Turmeric Beverages in recent years.

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