Kellogg Co. is selling its Lender's Bagels business to the owner of Log Cabin syrup and Aunt Jemima pancake mix, in a deal which stands to boost production at the Lender's bakery in West Seneca.
The buyer is Aurora Foods Inc., a diversified $1 billion food company based in San Francisco that owns brands such as Duncan Hines, Log Cabin, Mrs. Butterworth's, Van de Kamp's, Mrs. Paul's, Chef's Choice, Aunt Jemima, and Celeste.
Aurora will pay $275 million for the frozen bagel maker, a whopping 41 percent less than Kellogg paid for Lender's less than four years ago. Kellogg had purchased Lender's in 1996 for $466 million.
The deal, which includes Lender's plants in West Seneca and Mattoon, Ill., is expected to be completed by Nov. 1. For a limited period of time, Kellogg will supply Aurora with bagels from the Lender's plants in New Haven and West Haven, Conn., which will remain with Kellogg.
But down the road, a portion of that work will be redirected to the Lender's bakery at 75 Empire Drive in West Seneca, according to Aurora Vice Chairman James Ardrey.
"There will be no immediate changes to the work force in West Seneca, but as more work is shifted there, and we build the Lender's brand, we'd expect growth," Ardrey said.
"I can't tell you anything specific right now, but the West Seneca plant is key to the future of Lender's."
The West Seneca facility currently employs nearly 300 workers.
A number of improvements have been made at the local bagel plant in recent years, including a 1992 upgrade which brought the facility to some 100,000-square-feet in size, and increased production capacity by 20 percent.
While Kellogg executives cited the fact that the frozen supermarket bagel division was not making money for the breakfast giant in their decision to sell it, Aurora sees great potential for the product.
"We believe the Lender's brand was undermarketed by the previous owner and it's a strong brand with lots of room for growth," Ardrey said. "It simply didn't receive the attention and devotion of Kellogg's management that it deserved."
Aurora Foods plans to boost Lender's sales through the introduction of new products and packaging, increased strategic marketing support and dedicated management focus. Lender's is already the No. 1 brand of supermarket-sold frozen bagels.
At least one analyst welcomed the sale announcement from the Kellogg point-of-view. John McMillan of Prudential Securities, said Kellogg should never have been in the bagel business.
"Next to Quaker's purchase of Snapple, Kellogg's purchase of Lender's was one of the dumbest in the food industry in the 1990s," he said. "Kellogg got into the frozen bagel business just as everyone else was getting into fresh bagels," McMillin said.
He said the sale is a step in the right direction as Kellogg attempts to regain its financial health.
Kellogg announced that it expects to record a charge to earnings of approximately $170 million before taxes in the current quarter as a result of the sale. Kellogg plans to report third-quarter results Oct. 28.