Farmer Bros. Co. (Nasdaq: FARM) announced a definitive agreement to acquire from Sara Lee Corp. (NYSE: SLE) its U.S. direct-store delivery (DSD) Foodservice coffee business.
The $45-million acquisition is expected to nearly double Farmer Bros. revenue, extend its reach to all 48 mainland states and make it the nation's largest direct-store delivery business for coffee and allied products.
'This acquisition will allow us to quickly achieve our long-term goals of coast-to-coast market penetration, cost reductions and margin improvements as a result of economies of scale, and improved returns on our invested capital,' said Rocky Laverty, Chief Executive Officer of Farmer Bros. Co. 'This is a once-in-a-lifetime opportunity for Farmer Bros.
'As we integrate the Sara Lee Foodservice DSD coffee business into Farmer Bros., we will be able to deliver a more robust portfolio of products to meet every taste and price point while providing a truly national network for distribution and service,' added Laverty. 'We will have more of the tools to help our customers - from national chains to independent restaurants - compete with 'the perfect cup' of coffee.'
Through the transaction, Farmer Bros. will acquire more than 20,000 additional customers, the Foodservice coffee business' sales and distribution staff and infrastructure (including more than 60 'branch' facilities and a fleet of vehicles, a major coffee manufacturing plant in Houston, a distribution and spice facility in Oklahoma City), and 10 popular coffee brands, including a leading institutional brand, Superior Coffee. Also, several members of the Foodservice coffee business' senior management team have agreed to join Farmer Bros.
Farmer Bros. expects the acquisition to contribute incremental positive cash flow within six to 12 months after the closing. This will be done through lowering corporate expenses and reducing warehousing and transportation costs. The full cost savings and profit enhancements from the combination are expected to be achieved over three years after the closing.
Farmer Bros. has developed a detailed integration plan, which will be implemented by executives from both organizations.
'Our first priority after the closing will be to maintain excellent customer service throughout the organization. By the second year we expect to begin capturing more of the cost savings and economies of scale that can lead to margin improvements and operating profitability,' said Drew H. Webb, Executive Vice President and Chief Operating Officer, who will lead the integration process.
'The integration process also will focus on ways to help customers become more competitive - in particular, we will look for opportunities to present customers with a broader range of choices of the popular brands from the Sara Lee Foodservice DSD coffee business and Farmer Bros. as well as the specialty coffee roasts and marketing programs from Coffee Bean Intl., which we acquired in 2007,' added Webb. 'The ultimate goal of our integration process will be to position the combined organization to efficiently compete both locally and nationally in all of our market segments - even in difficult economic environments.'
With this acquisition, Farmer Bros. hopes to be a leader in all key markets of the U.S. It will serve restaurants and other food-service operators with a wide assortment of coffee brands as well as allied products such as cappuccino and cocoa mixes and spices.
The closing is expected in the first quarter of calendar 2009. The transaction will be financed with cash and debt and is structured as an asset purchase.
Kerlin Capital Group LLC acted as financial advisor to Farmer Bros. on the transaction.
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