March 16, 2017 / 4:35 PM / 3 years ago

Rao's Specialty Foods up for sale: sources

(Reuters) - Rao’s Specialty Foods Inc, the tomato sauce offshoot of famed Rao’s Italian restaurant in Harlem, New York, has hired an investment bank to explore a sale, according to people familiar with the matter.

The deal will test the appetite of big food companies for the gourmet tomato sauce that originated in Rao’s restaurant, as the sauce lines battle increased competition from niche, premium brands.

Rao’s, which has more than $20 million in 12-month earnings before interest, taxes, depreciation and amortization, has hired investment bank Morgan Stanley (MS.N) to lead the sale process, the people said this week.

The sources requested anonymity because the information is confidential. Rao’s Specialty Foods did not respond to requests for comment, while Morgan Stanley declined to comment.

Rao’s tomato sauce competes with brands both created and acquired by the largest food companies. Soup company Campbell Soup Company (CPB.N) launched Prego tomato sauce in 1981. Japan’s Mizkan Group, meanwhile, acquired the Ragu and Bertolli sauce brands in 2014 from Unilever Plc (ULVR.L) for $2.15 billion.

Last year, food and condiment company Kraft Heinz Co (KHC.O) launched a line of premium pasta sauces under the name “Classico Riserva” with no artificial ingredients or added sugar, in response to shoppers’ increasing shift towards specialty options.

Rao’s Specialty Foods, which was launched by relatives of the founders of Rao’s restaurants, sells oils, dressings and jarred vegetables.

Rao’s New York restaurant opened in 1896. It is frequented by actors, politicians and singers, including Billy Crystal, Hillary Clinton and Celine Dion. Rao’s has since expanded to Los Angeles and Las Vegas.

Frank Pellegrino Sr, who founded Rao’s Specialty Foods in 1992 and whose New York celebrity as nightly host of Rao’s landed him a role in the HBO show “The Sopranos,” died in January at age 72.

Rao’s Specialty made leadership changes in 2016, appointing as CEO Eric Skae, the founder and former CEO of New Leaf Brands, Inc iced tea company, and as president Jim Morano, who previously worked at L’oreal SA (OREP.PA) cosmetics company.

Reporting by Lauren Hirsch in New York; Editing by Cynthia Osterman

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