Hormel Foods Corp agreed to buy Skippy, the iconic U.S. peanut butter brand, from Unilever Plc
The deal also helps Hormel, struggling with rising livestock feed costs, expand beyond meat products and gives it a bigger global presence, including in markets such as China where Skippy is the leading peanut butter brand.
Hormel shares rose 6 percent to $33.82 - their highest ever - before easing a little to $33.37 in late morning trading on Thursday on the New York Stock Exchange.
Consumer goods conglomerate Unilever said in October it was selling the Skippy line, as it shifted its focus to higher-growth food brands such as Knorr and Hellmann's, and fast-growing personal care products such as Dove, Lux and Rexona.
Analysts, at the time, expected Skippy to fetch around $400 million.
"In our view, (Hormel's) management has made a very smart move in diversifying away from its animal protein core at a time when margins are likely to correct downward. This deal plugs that gap," Janney Capital markets analyst Jonathan Feeney said in a note.
Skippy, which dates back to the early 1930s, is the No.2 U.S. peanut butter brand after J.M. Smucker Co's Jif. It had annual sales of $300 million in 2011 and Hormel expects it to contribute $370 million this year.
"(Skippy) allows us to grow our branded presence in the center of the store with a non-meat protein product and it reinforces our balanced portfolio," said Hormel Chief Executive Jeffrey Ettinger.
In a call with analysts, Ettinger said peanut butter sales were surging in international markets while growing at a much slower pace in the United States.
Sales of Skippy in China are in a range of $30 million to $40 million, Ettinger said on the call, making for a large chunk of the $100 million Hormel is targeting from international sales.
The Skippy business will add modestly to Hormel's fiscal 2013 results and add between 13 cents and 17 cents per share to 2014 earnings, the company said.
The deal, which is Hormel's largest, will include Unilever's Skippy manufacturing facilities in Little Rock, Arkansas and Weifang, China, Unilever said.
Hormel will fund the deal with cash on hand and from a small draw from its credit facility, Chief Financial Officer Jody Feragen said on a call with analysts.
Barclays is serving as exclusive financial adviser to Hormel.
Unilever shares were down marginally at 2,388.92 pence on the London Stock Exchange.
(Reporting by Siddharth Cavale in Bangalore; Editing by Joyjeet Das and Saumyadeb Chakrabarty)