August 9, 2010 / 6:59 AM / in 7 years

UPDATE 4-Simmons Pet Food to buy Menu Foods, units soar

* Deal value is C$239 mln, including debt

* Menu Foods involved in 2007 pet-food recall

* Deal represents 46.8 pct premium over Aug 6 close

* Menu Foods units soar 45 percent (Adds analyst comments)

By Solarina Ho

TORONTO, Aug 9 (Reuters) - Menu Foods Income Fund MEW_u.TO, an embattled Canadian pet-food maker, announced a deal on Monday to be bought by one of America’s largest private-label pet food makers for C$239 million ($232.9 million), ending years of struggle following a tainted food scandal.

Menu Foods units soared more than 45 percent on the news that Arkansas-based Simmons Pet Food Inc is set to buy it.

The deal follows a strategic review undertaken in March by the board of Menu Foods, whose products were at the center of a big recall in 2007.

The price includes Simmons’s assumption of Menu Foods’ debt.

Simmons, an affiliate of Simmons Foods Inc, is offering C$4.80 in cash for each Menu Foods unit. That represents a 46.8 percent premium on Friday’s closing price of C$3.27 on the Toronto Stock Exchange, Menu Foods said.

The units were up C$1.45, or 44 percent, at C$4.72 at mid-afternoon on Monday.

“I think it’s fairly obvious that they never did manage to recover from the recall,” said David Lummis, a senior pet market analyst for Packaged Facts.

“They hung on for about three years, which is actually a good deal longer than I thought they would...The company really was devastated.”

In 2007, the Mississauga, Ontario-based company recalled at least 60 million packages of pet food involving more than 60 different brands it had made for other companies. The food was sold under well known labels such as Procter & Gamble’s (PG.N) Iams cat food and private-label brands sold by retailers such as Wal-Mart (WMT.N) and Safeway SWY.N.

The food contained wheat gluten and rice protein concentrate imported from China that was contaminated with melamine.

The tainted food was blamed for sickening or killing hundreds of cats and dogs in North America.

The scandal resulted in the company losing major customers that represented roughly 37 percent of its sales. When it reported first-quarter results for this year in May it said the reverberations of the recall were still being felt and were partly responsible for a 25 percent drop in sales. [nSGE64C0KY]

Americans spent roughly $17.6 billion on pet food in 2009, according to the American Pet Products Association.

“The publicity was just so horrific that I suspect that the company just couldn’t survive under the name Menu Foods and it just really makes more sense for it to be absorbed by somebody else,” Lummis said.

$1=$1.03 Canadian Additional reporting by Sakthi Prasad in Bangalore; editing by Peter Galloway

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