San Francisco-based Del Monte Foods Co. will divest its StarKist Seafood unit to Korean conglomerate Dongwon Enterprise Co. for $363 million in order to concentrate on higher margin produce and pet foods.

Del Monte Foods Co., which operates brands such as Contadina, Kibbles 'n Bits and 9Lives, said the divestiture would improve margins, eliminate a source of earnings volatility and reduce debt. (See: Del Monte says might offload StarKist) 

In fiscal 2008, the seafood business generated about $560 million in sales. It is the top selling tuna brand in the US, with a 35-per cent market share. Del Monte said the sale price represents a multiple of approximately 6-7 times the average trailing three-year contributed EBITDA of the seafood business.

"Given the unique dynamics of our seafood business, including its heavy dependence on a single input cost and participation in a comparatively lower growth category, StarKist was no longer an ideal fit for Del Monte, given our sharpened strategic focus going forward," said Rick Wolford, chairman and CEO.

The sale includes Del Monte's manufacturing businesses in American Samoa, Ecuador and some seafood factory assets in Terminal Island, California. Del Monte expects to wrap up the deal by the second quarter of its fiscal year 2009, subject to regulatory approvals.

All of Del Monte's direct plant employees related to the seafood business and about 34 other salaried positions are expected to join Dongwon. Del Monte also agreed to provide operational services, such as warehousing, distribution, transportation, sales, IT, and administration, for Dongwon for two years.

Dongwon is based in Seoul and is a conglomerate of seafood, warehousing, distribution and other businesses. Like other Korean chaebol conglomerates, Dongwon consists of many types of businesses. It also has a unit making cameras, binoculars and microscopes and a construction division making equipment to be used in a North Korean light water reactor.

"We believe that the acquisition of StarKist seafood will help Dongwon establish a strong foothold and penetration in the US market as we look to drive Dongwon's initiatives for globalization," said Ingu Park, vice chairman of Dongwon.

The transaction is expected to generate net proceeds of $300 million, which will be used to cut Del Monte's debt. Looking ahead, the company forecast fiscal 2008 profit from continuing operations (which excludes StarKist) of $108 million, or 54 cents per share, on revenue of $3.18 billion. Del Monte said it would provide further details, including updated fiscal 2009 sales and margin guidance, at its investor day on 8 July.

The Del Monte brand is sold across the world; but its ownership is split. The websites of Del Monte Corporation of the US and Fresh Del Monte Produce spell it out in no uncertain terms that they have nothing to do with the other Del Montes. Fo instance, on the Del Monte Pacific website, you see the notice: "Del Monte Pacific Limited and its subsidiaries are not affiliates of Del Monte Corporation and its parent, Del Monte Foods Company, or Fresh Del Monte Produce, Inc. and its subsidiaries, or Kikkoman Corporation and its subsidiaries, including Del Monte Asia Pte Ltd." (See: Del Monte who? Del Monte Pacific)