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updated: 6/30/2014 5:01 PM

TreeHouse Foods to buy snack maker Flagstone for $860 million

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Oak Brook-based TreeHouse Foods Inc., a maker of private-label foods for retailers, said Monday it had agreed to buy Flagstone Foods for $860 million in cash to expand in healthy snacks such as dried fruits.

The deal will add 24 cents to 28 cents to per-share earnings in the first year after completion, TreeHouse said in a statement. The final price paid to private-equity firm Gryphon Investors and other Flagstone investors is subject to a working-capital adjustment.

TreeHouse has acquired at least six food companies in the past four years, adding products including soups, sauces and powdered drinks, as retailers seek to appeal to bargain-hunting consumers with less-expensive house brands. Flagstone, which had about $697 million in sales last year, is the largest private-label producer of trail mix and dried fruit, bringing TreeHouse into a category fueled by increased demand for healthy snacks.

"The health trend is growing significantly right now within the U.S. consumer set, and many food companies are responding to that either by developing healthy food alternatives or acquiring into the healthy food space," Brett Hundley, an analyst at BB&T Capital Markets in Richmond, Virginia, said Monday in an interview. "That is where the growth is today."

TreeHouse rose 0.2 percent to $80.07 at the close in New York. The shares have gained 16 percent this year, compared with a 6.1 percent advance for the Standard & Poor's 500 Index.

Private Labels

Private labels account for about 18 percent of U.S. food sales, compared with 30 percent to 40 percent in some markets in Europe, suggesting the industry has room to grow domestically, Hundley said.

"A lot of U.S. grocery stores have lost share to the Wal-Marts of the world because they can't compete on branded price," he said. "What grocery stores are doing is developing a very strong store brand, or private-label brand, and that is bringing consumers back into the store."

Flagstone is based in St. Paul, Minnesota, and has about 1,365 employees.

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