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Hormel Foods Corp. (HRL - Analyst Report) announced its plans to purchase Skippy®, the peanut butter line, from Unilever United States Inc. (UL - Analyst Report). The move is seen as an initiative by Hormel to expand its product portfolio in view of increasing raw material costs, along with a reduction in demand of its core products like meat.

Introduced in 1932, Skippy® holds the second largest market share in the US for natural peanut butter category, offering as many as 11 varieties of shelf-stable peanut butter products. In the US, peanut butter accounts for businesses amounting to $2 billion and is the second most popular sandwich spread after ham. The product line has a presence in over 30 countries spreading over five continents around the globe. Consequently, the acquisition is likely to be accretive with immediate effect.

On the other hand, Unilever has divested the business as a result of a decline in revenue from its foods segment. The company is eager to focus more on the other segments where profitability is higher. In the third quarter of 2012, the Foods segment saw a decline of 0.4% whereas the company’s Personal and Home care segment saw a rise of 8.0% and 11.0%, respectively.

The transaction, priced at $700 million, is subject to regulatory approvals. The total annual sale from Skippy® is estimated to be $370 million out of which $100 million is expected from countries outside the US.

Based in Austin, Minnesota, Hormel is a leading manufacturer and marketer of various meat and food products in the US and internationally. Hormel has a Zacks #3 Rank, which translates into a short-term (1-3 months) ‘Hold’ rating. The company faces stiff competition from ConAgra Foods Inc. (CAG - Analyst Report) and Tyson Foods Inc. (TSN - Analyst Report), both bearing a Zacks #2 Rank (Buy).

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