Hain Celestial Shoots for the Moon in Seller's Market

(Bloomberg Gadfly) -- The food industry is a seller's market right now, so it makes sense that Hain Celestial Group Inc. would shoot for the moon in soliciting takeover offers. But investors should tame their expectations -- this one may be celestial in name only.

The maker of Arrowhead Mills gluten-free baking products and Alba Botanica face wash just took another step toward finally selling itself. Hain struck an agreement with activist shareholder Engaged Capital that involves expanding its board and tasking them with examining sale options. Centerview Partners -- which advised Hillshire Brands in its sale to Tyson Foods Inc. and Kraft Foods during the H.J. Heinz merger -- is said to be assisting with Hain's process. 

Engaged Capital is hopeful for juicy bids -- maybe too hopeful. The fund believes Hain could sell for $46 to $73 a share based on recent acquisitions in the space, Bloomberg News reported. The activist cited General Mills Inc.'s takeover of Annie's, Danone SA's acquisition of Whitewave Foods and Pinnacle Foods Inc.'s purchase of Boulder Brands as examples. 

The only problem with singling out those transactions is that they are the three most expensive deals ever for U.S. makers of packaged-food, beverages, personal-care or household products. 

A lot of suitors could line up for Hain's popular brands that cater to the organic-seeking, gluten-free, granola shopper types. But Hain also has a very diverse portfolio, which makes it difficult to find one buyer willing to take on the whole thing. It's also a $4.5 billion company, and each dollar-per-share increase in price for Hain costs an additional $100 million to an acquirer. Simply put, that makes a Hain deal riskier. 

The stock initially surged more than 7 percent Thursday morning before pulling back to $40.12, valuing the company at 27 times trailing 12-month Ebitda. That's already nearly as rich as what Boulder Brands commanded in its sale. Engaged Capital's pie-in-the-sky price of $73 a share -- a whopping 71 percent premium to Hain's current level -- implies a total takeover value of $8.2 billion, or nearly 46 times Ebitda. Fat chance.

Banker types prefer to use projected adjusted Ebitda because they're glass-half-full people. It makes takeover targets look a little bit cheaper, but even Hain's multiple of about 14 by that measure is on the rich side for its industry. Bob Evans Farms Inc. last week agreed to an offer from cereal maker Post Holdings Inc. worth 15 times projected Ebitda, and Post was really only willing to pay that much because the outlook for cereals is so bad and it's desperate to move into other sections of the grocery store. 

In the face of competitive pressure from Amazon.com Inc.'s Whole Foods Market Inc. deal, are Kraft Heinz Co., General Mills or any of the others desperate enough to pay up and buy all of Hain in one fell swoop? I'm not convinced. It may be more likely that Hain sells in pieces. But any offers from this level will still be attractive. 

If anyone does bid over, say, $60 a share, though, they'll have to get the Gadfly treatment. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

To contact the author of this story: Tara Lachapelle in New York at tlachapelle@bloomberg.net.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net.