Post to buy Michael Foods for $2.45B

Minnetonka-based egg power Michael Foods said Thursday that it will be purchased by Post Holdings Inc. for $2.45 billion, as the nation's No. 3 cereal company looks to diversify.

Michael Foods, while hardly a household name, is a giant in liquefied and processed eggs, supplying restaurants nationwide. The company, owned primarily by an arm of Goldman Sachs Group Inc., also makes Crystal Farms cheese and the Simply Potatoes line of refrigerated foods, both big in supermarkets.

St. Louis-based Post is betting it can capitalize on rising consumer demand for protein, along with increasing away-from-home breakfast consumption. Restaurants are giving cerealmakers more competitive headaches these days.

Little change is expected at Michael Foods, said CEO Jim Dwyer, who will report to Post CEO Bill Stiritz. "They told us basically that our operations will stay as they are. … [Michael] was founded and grew up in the Twin Cities, and this outcome assures that we will remain a part of the Minnesota business landscape."

Though some of its brands date back decades, Michael Foods was formed in the 1980s. It had $1.9 billion in sales last year, and more than 1,300 of its nearly 3,700 employees are in Minnesota. About 500 are in the Twin Cities, split between the company's headquarters and a big Simply Potatoes production plant in Chaska.

Michael also has a sprawling operation in Gaylord — which raises hens and processes eggs — and a smaller egg facility in Le Sueur. While it purchases about 70 percent of the eggs it processes, Michael Foods is still the sixth-largest U.S. egg producer with 11.3 million laying hens at the end of 2013, according to Egg Industry, a trade publication.

The company's overall annual sales have grown 10 percent since 2011, while its net earnings have more than tripled. Michael's egg business makes up about 75 percent of sales, and includes products for food ingredient markets and two retail brands, All Whites and Better'n Eggs.

Michael Foods is North America's largest egg products maker. The Post acquisition marks the fourth time the company has been sold since 2001; past deals have involved private equity groups.

GS Capital Partners, a unit of Goldman Sachs, has been the majority owner of Michael Foods since buying a 75 percent stake in 2010 for $1.7 billion. Thomas Lee Partners, which invested in the firm in 2003, owns a 20 percent stake.

"We were fortunate to have a series of private equity owners who gave us the capital we needed to grow our business," Dwyer said. He said he expects Michael Foods to operate under Post akin to how it's been run under private equity ownership.

Post, which dates back to the 1890s, also has had a series of owners in recent years. Packaged food giant Kraft Foods in 2008 sold Post to Ralcorp Holdings, a big producer of private-label breakfast ­cereals. In early 2012, Ralcorp then spun off Post in an initial public stock offering.

Post is a distant third in the U.S. cereal business with a nearly 11 percent market share, according to market researcher Information Resources Inc. (IRI). Golden Valley-based General Mills Inc. and Kellogg Co. lead the cereal category, each with a share of just over 30 percent.

The Michael Foods deal is a transformative one for Post: Michael is almost twice as big as measured by revenue. Post had $1 billion in sales in its most recent fiscal year.

Post said it will buy Michael with debt and cash and has announced plans to raise up to $500 million by selling stock. Post's stock closed Thursday at $54.25, down 48 cents.

Mike Hughlett • 612-673-7003