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Del Monte Pacific ventures into US with $1.7 billion deal

Singapore-listed food and beverage company Del Monte Pacific has acquired U.S.-based Del Monte Foods Consumer Products for about $1.7 billion, a move that will reunite the firm with its mother brand.

The acquisition will include the U.S. business' leading canned fruit, vegetable and broth business. The deal is expected to close no later than the first quarter of 2014.

"This acquisition of Del Monte U.S.' consumer foods business is really strategic for us," Luis F Alejandro, chief operation officer at Del Monte Pacific told CNBC's Cash Flow on Friday.

(Read more: After-hours buzz: GNC, Praxair, Del Monte & more)

"It opens us up to a well-established branded consumer foods business in the world's biggest market. Prior to the acquisition, the U.S. was one of the few markets where our company did not have any direct presence or have its own brand," added Alejandro.

Del Monte is 67 percent owned by NutriAsia Pacific Limited (NPL), owned by the NutriAsia Group, which is majority-owned by the Campos family of the Philippines. The U.S.-based Del Monte Foods is a separate company which was acquired in 2011 by a consortium of private equity groups including KKR.

Alejandro also said he did not feel threatened about venturing into the U.S. market amid fierce competition in the food and beverage sector, especially with the rise of club stores, such as the likes of Costco, which have made conditions tougher for private labels like Del Monte.

Matthew Staver | Bloomberg | Getty Images

"I think the private labels will never go away even with the Walmart's and the other club stores in the U.S., Del Monte U.S. has a really good relationship [with them]," he said.

"We… believe that DMF's consumer food business provides an attractive platform to offer certain products appealing to the large and fast growing Hispanic and Asian American populations in the U.S.," said Rolando Gapud, chairman of the board of Del Monte Pacific, in a press statement.

(Read more: Why Singapore's economy looks set for a contraction)

"We are very excited about this historic transaction which reunites a substantial portion of the Del Monte brand family," he added.

The deal will allow San Francisco-based Del Monte Foods to concentrate on its pet foods unit. After the sale of its canned food business, the firm plans to change its name, Reuters reported.

"I think both companies have realized that they [Del Monte Foods] focusing on pet food and us focusing on food and beverages will allow us to max the potential of both businesses," said Alejandro.

In anticipation of the deal, analysts had expected Del Monte Pacific would have had to pay more, possibly around $2 billion. But Alejandro said the final price had been agreed after close analysis of the firm's profitability and EBITDA (its net income with interest, taxes, depreciation and amortization added back into it).

(Read more: Singapore jumps to second spot in global IPO activity)

Del Monte Pacific, whose primary market is the Philippines, has leading market share in canned pineapple juice and tomato source products. It operates the world's largest pineapple plantation in the Philippines.

The firm has seen a near 70 percent share price rally this year. Trading of its shares was halted before the news on Thursday; on Friday shares jumped 6.6 percent to trade at SG$0.85 (US$0.68).

Del Monte Pacific has been enjoying strong growth with net profit nearly trebling over the past three years to US$32.1 million in 2012. The transaction will give the firm additional net sales of more than $1.8 billion.

The deal will be funded through a combination of about $745 million of equity in the company's new acquisition subsidiary, in addition to long term financing of $930 million.

— By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie

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