TreeHouse Foods Faces Jana Pressure to Explore Sale

(Bloomberg) -- Activist investor Jana Partners has called on TreeHouse Foods Inc. to launch a strategic review, including exploring a potential sale, according to people familiar with the matter. TreeHouse rose as much as 23% on the news.

Jana believes the stock is undervalued and that there might be interested suitors following buyout firms' interest in private label brands businesses in recent years, the people said, asking not to be identified because the matter is private. Talks between the parties are constructive and ongoing, the people said.

The New York-based investor, which has built a roughly 7.5% stake, has also nominated three directors to the board, according to a regulatory filing Wednesday confirming a Bloomberg News report.

TreeHouse's 23% gain was the stock's biggest jump since 2005, according to data compiled by Bloomberg. Its shares closed up 19% at $50.69 in New York Wednesday, giving the company a market value of $2.9 billion.

The company said in a statement it would review Jana's nominees for the board. TreeHouse said that it had held multiple discussions with Jana, and said that the investor was supportive of the actions it had taken to drive growth and profitability. It said it was open to constructive dialogue with its shareholders, and planned to provide an update on its progress during its earnings call scheduled for Thursday.

A representatives for Jana declined to comment.

Shares in TreeHouse have underperformed the broader S&P 500 Index in recent years. The company's shares have fallen 8.7% over the past year through Tuesday's close while the S&P 500 has gained about 17% over the same period, according to data compiled by Bloomberg.

Activist Target

TreeHouse ranked second overall among companies in the Russell 3000 most likely to draw interest from activist investors, based on the Bloomberg activism screening model, which factors in things like its returns.

The company has also become a target for short sellers, and may be a potential candidate for a short squeeze in the wake of the events at GameStop Corp. and other companies with similar profiles to TreeHouse, in recent weeks, according to Steven DeSanctis, an analyst at Jefferies Financial Group Inc.

“The Robinhood and retail investors have been taking their aim at smaller-cap names that tend to lack liquidity,” he said in a Jan. 28 note to clients.

Jana, which was founded by Barry Rosenstein, has a long history of pushing for consolidation in the consumer space, including agitating at Whole Foods Market Inc. before it was sold to Amazon.com Inc. in 2017. It also pushed for the sale of Pinnacle Foods Inc., PetSmart Inc. and Safeway Inc. before they were sold.

Private label businesses, like TreeHouse, make food and beverages for grocery stores to sell under their own brands. TreeHouse's products range from cookies and crackers to frozen waffles and coffee, according to its website.

There has been been some private equity interest in the sector in recent years. Post Holdings Inc. announced in 2018 that it had formed a new private label brand subsidiary, 8th Avenue Food & Provisions, and transferred its existing assets to the new business. It sold an almost 40% of the new entity to private equity firm Thomas H. Lee Partners.

Jana's nominees for TreeHouse's board are Meredith Adler, John Paul Gainor Jr., and Charles Myers, the filing shows.

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