Anderson, Clayton Agrees to Merge With Quaker Oats : Deal for Maker of Gaines Pet Foods Is Valued at $812 Million

HOUSTON â€”  Anderson, Clayton & Co. announced Sunday that it signed a definitive merger agreement for its acquisition by Quaker Oats Co. for $812 million.

Quaker Oats, which topped a $64-per-share proposal from Ralston Purina Co., was expected to begin a $66-a-share cash tender offer on Tuesday or Wednesday

Ralston Purina had no immediate comment.

A source close to Anderson, Clayton said Ralston’s board, which met in St. Louis on Friday, was willing to pay $64 per share but would not assume the consequences if the federal government objected to its proposal on antitrust grounds.

Quaker, hearing that Ralston might be getting close to buying Anderson, Clayton, filed an antitrust suit last Friday seeking to block such a merger.

The source said Quaker Oats, which on Friday raised its offer from $64 a share to $65, then agreed to pay $66 per share.

Clayton Family’s 33% Stake

“We had Ralston at $64 with an antitrust question and Quaker at $66 with no antitrust problem; the spread was more than $2,� the source said.

Quaker Oats, headquartered in Chicago, is the maker of the Ken-L-Ration pet food line.

It had previously won government approval to acquire Anderson, Clayton, which makes Gaines pet foods.

The key to the situation was a decision by four members of the Clayton family, which controlled 33% of Anderson stock, to sell to the highest bidder.

The family group had previously favored a management plan to restructure the company and opposed a rival proposal from Bear, Stearns & Co. and Gruss & Co. to buy the company for $66 per share and sell the Gaines business to Quaker.

The source said the family members, by sticking together with their 33% block, managed to trigger a bidding war between Ralston and Quaker.

The source estimated that Quaker was paying $500 million for the Gaines business, double the price that it was willing to pay under the Bear, Stearns/Gruss proposal.

Ironically, General Foods Corp., which is now part of Philip Morris Cos., sold Gaines to Anderson, Clayton 2 1/2 years ago for $180 million.

The source speculated that General Foods was a victim of poor timing and an unforeseen bidding war for a market share in the hotly contested pet food industry.

Ralston has about 28% of the pet food business in the United States, more than any other company. The addition of Gaines would have boosted its share to 35%. Quaker has an 8% share and would increase that to 15% by buying Gaines.

Apparently Near Victory

Quaker had put itself into contention on Thursday by buying 23.4% of Anderson, Clayton stock. On Friday, Ralston appeared on the verge of victory by buying 1.3 million shares of Anderson, Clayton stock in London.

That stock, combined with the family stock and another block in an employee plan, could have given Ralston control. But the family decision to sell to Quaker changed the outcome.

Quaker will probably sell off Anderson, Clayton’s Chiffon Margarine and Igloo insulated container business, the source speculated.

Anderson, Clayton’s announcement on Sunday said Quaker arranged to purchase 3.8 million shares from the Clayton family group for $66 per share. That purchase plus the stock that Quaker bought last Thursday gives Quaker more than 53% of Anderson, Clayton stock.

No. 2 Pet Food Company

“The acquisition of Anderson, Clayton & Co. makes good sense strategically and is consistent with Quaker’s stated strategy of increasing share in our core businesses, which is part of our overall objective of maximizing shareholder value,� said William S. Smithburg, chairman and chief executive of Quaker. “The combination of our own pet food business with Anderson, Clayton’s Gaines pet food business will make us the No. 2 pet food company in the United States and a more formidable competitor in the marketplace.�

W. Fenton Guinee, Jr., president of Anderson, Clayton, said: “We are pleased that we have reached an agreement which provides significant value to Anderson, Clayton stockholders and addresses in a responsible way the interests of our employees.�