By Investing.com Staff
Freshpet (NASDAQ:FRPT) has an activist, bankers, and now maybe a likely suitor.
Bernstein analysts wonder if J.M. Smucker Company (NYSE:SJM) will use the proceeds from the sale of several pet food brands as a source of funds to go after Freshpet.
After the close Wednesday, The J.M. Smucker Co. announced it would sell its Rachael Ray Nutrish, 9Lives, Kibbles 'n Bits, Nature's Recipe, and Gravy Train brands as well as the Company's private label pet food business to Post Holding (NYSE:POST) for $1.2 billion, consisting of $700 million in cash and approximately 5.39M shares of common stock of Post Holdings .
The J.M. Smucker Co. said it will not exit the pet food market entirely but focus on "areas of our business that offer the strongest growth and profit potential." In its pet business, this is reflected in their focus on dog snacks and cat food, anchored by its Milk-Bone and Meonow Mix brands.
Bernstein highlights Smucker's management said it "anticipates replacing the divested earnings through the deployment of transaction proceeds." They said this "implies fairly clearly that management is looking to do another deal."
They think The J.M. Smucker Co. could have Freshpet in their sights as a premium pet food business.
"If they remain within pet, the obvious question is whether FreshPet might be on the menu," the analysts said. "At $3.0b in market cap, no net debt and a stock price that is around one third of where it was at its peak in April 2021, it's certainly looking more digestible now than it was a couple of years ago."
While a deal would make sense, the analysts also note that the business model is somewhat different given the refrigerated supply chain and capex required to install dedicated refrigerators in retail outlets. Further, they note Smucker's track record in managing its own more traditional pet food business over the past 8 years is "patchy."
"That said, FreshPet clearly is in the fast-growing premium segment of the category which is clearly more attractive than the value end in a category that is premiumizing," they added.
Looking beyond pet food, the analyst said the company could target The Simply Good Foods Company (NASDAQ:SMPL), or even BellRing Brands, Inc. (NYSE:BRBR). It may also "choose to stick closer to home with a private brand in the frozen snacks area, given their recent success and momentum with the Uncrustables brand," they added.
Freshpet is no stranger to the rumor mill after activist investor firm Jana Partners built a nearly 10% stake in the company last fall. It was later reported that Freshpet hired an investment banker for a possible sale.