Hormel Foods Corp. agreed to buy Planters nuts for $3.35 billion, the largest acquisition in Hormel's 130-year history.

The Austin, Minn.-based food company — known for bacon, turkey, Spam and its down-home style of business — has steadily gobbled up smaller protein-centric food brands for the last five years. The Planters brand is easily the most well-known name of those deals.

"We love it," Hormel Chief Executive Jim Snee said. "We got it at a price that we think is a good deal."

Kraft Heinz Co. agreed to sell the popular nuts and snack-mix business as it continues to shore up a struggling balance sheet. For Hormel, the deal eclipses its previous record purchase of $850 million for the deli-meat brand Columbus in 2017.

It's the latest move by Hormel to transition from a commodity meatpacker into a branded food company. At $1 billion in annual sales, the Planters business will expand Hormel's overall revenue by about 10%.

Hormel first identified Planters as a top acquisition target in 2016, but it didn't begin conversations with Kraft Heinz in earnest until the start of 2020.

Hormel's chief financial officer, Jim Sheehan, is known for maintaining a sizable cash pile and being relatively averse to debt. Snee said friends called him Thursday to jokingly ask how he got Sheehan to finally open up the company checkbook.

"The same financial discipline that had us pass up on other deals is the same financial discipline that told us this was the right deal. We asked the same questions, went through the same process," Sheehan said. "There was a point that it was just so clear that it was the right deal."

Hormel will finance the deal through short-term and long-term debt, as well as cash on hand, Sheehan said. The average cost of debt for the deal is 1.5%, he said. Some of the debt will be paid down as soon as six months and most of it will be gone within two years.

The Planters nuts business will bolster Hormel's portfolio of branded products, which already includes Skippy peanut butter, Dinty Moore stew and Justin's nut butters, that garner higher margins.

Cheez Balls and Corn Nuts brands are also a part of the Planters acquisition.

Following the acquisition, 25% of Hormel's sales will be from nonmeat products.

Some analysts said the Planters business straddled the line between a pure commodity and a value-added product.

Commodities are raw agricultural products that yield lower profit margins and are often more vulnerable to generic or store-brand competitors.

"I can recognize a commodity business and this isn't it," Sheehan said.

Executives said they should attain "synergies" — industry parlance for the combined sum being greater than the individual brands — of approximately $50 million to $60 million by 2024.

Wall Street's response was muted to negative Thursday, citing these concerns about the brand being tired or too exposed to commodity price fluctuations. Hormel's stock closed down 3.3%.

"[Hormel] may get greater volume purchases on peanuts for both Planters and Skippy. These factors should give it room to invest in the brand. We also think it should help boost earnings growth in the short term," John Boylan, an analyst at Edward Jones, wrote in an analysis of the deal. "However, reinvigorating the Planters brand and its sales may take time and effort after what we think were years of neglect."

Kraft Heinz is criticized for underinvesting in its brands in recent years, after making faulty assumptions about consumers' commitment to them. That's why Hormel sees this as a golden opportunity.

"This is a great brand who's been starved," Sheehan said.

Kraft Heinz is the result of a 2015 merger that initially won the praise of Wall Street analysts and investors. Its austere approach to financial growth temporarily upended the entire packaged-food industry, but it didn't last.

Following a giant write-down of goodwill in 2019, the company hired new leaders who are looking to innovate a narrower set of products for growth.

Hormel, on the other hand, has been a steady provider of dividends and a strong balance sheet heavy on cash and light on debt. For the past decade, shareholder returns — including dividends and stock price — have neared an 18% compound annual growth rate, outpacing the S&P 500 and its industry peers.

The deal is expected to close in June.

Kristen Leigh Painter • 612-673-4767