American pet food company Freshpet is on the radar of activist investor Jana Partners

Freshpet has come under scrutiny by activist investor Jana Partners, who has acquired a 10% stake in the US business with a view to a potential sale.

Jana Partners acquired more than 4.5 million shares in the Nasdaq-listed pet food maker, equating to a 9.6% interest estimated at $188 million, according to a filing with the U.S. Securities and Exchange Commission on Sept. 12.

The investor stated in the document that he considers the “stocks undervalued and represent an attractive investment opportunity.” Those shares ended the trading session yesterday (September 22) at $45.47, less than half their value at the beginning of the year.

While New Jersey-based Freshpet reported a 34% increase in sales last year to $425.5 million, the company posted a net loss of $29.7 million, more than a loss of $3.2 million in the past 12 months. Losses continued during the first six months of the new fiscal period, but at a faster pace.

Jana Partners said it plans to enter discussions with Freshpet’s board of directors to assess “strategic value in the sale” with the goal of “capitalizing class interest from significantly larger players with lower capital costs, strong operating capabilities, global footprints and more on a scale.”

However, it does not plan to take a controlling stake in the company or pursue an “exceptional deal like a merger”. However, Jana Partners said it reserves the right to “propose” new board members to the board.

just food I have contacted Freshpet for comment today outside of US business hours.

A similar scenario played out this year at the US private-brand supplier TreeHouse Foods when Jana’s representative took a seat on the board. The investor took an initial interest in this business in 2021, before increasing the stake to 9.2%.

TreeHouse went on to launch a review, including options for partial or wholesale disposal of the business. This culminated in the sale of a “significant portion” of the US company’s meal-preparation arm in August to European investment group Investindustrial.

Earlier this month, Freshpet saw the departure of Chief Financial Officer Heather Pomerantz, who resigned on September 7 to “pursue other opportunities.” Former CFO and current Vice President Dick Kassar intervened on an interim basis.

CEO Billy Sayer noted at the time: “The rapid growth of our business, coupled with a fluid operating environment, has created a unique set of opportunities and challenges over the past two years. We remain committed to achieving our goals and are making some targeted investments to reduce volatility and create a greater range of capabilities to ensure Achieving the profitable growth we believe is inherent in this business.”

Freshpet produces refrigerated food for cats and dogs using natural ingredients sold through retail stores—grocers, grocery and club stores, natural food channels and specialty pet outlets—in the United States. It also exports to Canada and Europe, and sells online via its website.

In August, the company announced results for the six months through June 30. Sales rose 37.7% to $278.2 million, driven by “speed, pricing, distribution and innovation gains.”

But net losses widened to $38.1 million, surpassing last year’s $29.7 million, and a loss of $18.4 million the year before. Adjusted EBITDA decreased to $9 million from $18.6 million, with margin down to 3.2% from 9.2%.

Guidance for 2022 is for sales to rise about 35% to $575 million, while Freshpet expects EBITDA to rise 12% to $48 million, which is skewed “severely” into the fourth quarter.

See Just Food deal analysis: ‘Hot’ pet food for food industry deals in 2022 – M&A advisors

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