Hain Buys Celestial Seasonings

Hain Buys Celestial Seasonings

UNIONDALE, N.Y.--On March 6, the Hain Food Group (NASDAQ:HAIN) agreed to purchaseBoulder, Colo.-based Celestial Seasonings Inc. (NASDAQ:CTEA) for approximately $390million, which includes the assumption of debts. Expected to be accretive to Hain'searnings per share within the first year of combined operations, the acquisition isexpected to double Hain's annual revenue and help the company further penetrate themainstream market. The merger would be considered a pooling of interests and would be atax-free reorganization for all shareholders.

The name of the combined company will be Hain Celestial Group Inc., stocks of whichwill continue to trade on NASDAQ under the symbol HAIN. Under the terms of the deal,shareholders of CTEA stock will receive 1.265 shares of HAIN stock for each CTEA share.Based on the Mar. 3, 1999 close price of $32 for HAIN shares and the assumption of variousCTEA debts, the deal totals around $390 million. Shares of CTEA closed at $35.50 on thesame day. As part and parcel of the deal, Hain will also assume Celestial's $7.8 milliondebt.

The deal has been unanimously approved by the board of directors for both companies andnow awaits shareholder approval and customary Securities and Exchange Commission (SEC)requirements, all of which are expected to produce a closed deal by June 2000. CurrentHain president and chief executive officer Irwin Simon would maintain his managementpositions, while Celestial Chairman Mo Siegel would become vice chairman of the combinedboard, which will include eight existing Hain board members in addition to Siegel and twoother CTEA board members.

Celestial currently holds a leading 50 percent market share in the herbal tea categoryand sells 80 percent of its products in mass-market stores; its fiscal 1999 sales weremore than $100 million. HAIN revenues totaled more than $200 million in FY99, whichincludes sales of such brands as Westbrae, Arrowhead Mills, Estee and Earth's Best. Thepro forma total revenues for Hain Celestial Group are expected to reach about $430 millionfor the year ended June 30, 2000.

The move was not a surprise to the industry. "Hain has been actively looking foracquisitions and had publicly stated that Celestial was a company they wanted toacquire," noted Matthew Patsky, managing director with Adams, Harkness & Hill.

The new merger stands to benefit from a recent alliance between Hain andPittsburgh-based H.J. Heinz Co. (NYSE:HNZ), which acquired a 20-percent stake in the foodcompany. Shane Glenn, a food analyst with First Union Securities, agreed with otheranalysts that the merger could make Hain Celestial a very attractive purchase option for alarge food company, namely Heinz, providing no ease to takeover speculation that haspermeated the market and industry since mid-February.