St. Louis / MO. (pfh) Post Holdings Inc., a consumer packaged goods holding company, announced it has formed 8th Avenue Food + Provisions («8th Avenue»), consisting of Post’s private brands business, and it has entered into an agreement with Thomas H. Lee Partners, Inc. («THL»), a premier private equity firm investing in middle market growth companies since 1974, pursuant to which Post and THL together will separately capitalize 8th Avenue.
Post explored a range of structural alternatives for its private brands business resulting in Post and THL agreeing to organize and capitalize 8th Avenue for the purpose of driving consolidation in the private brands category. Jim Dwyer will continue as President and Chief Executive Officer of 8th Avenue. 8th Avenue management, Post management and THL have deep expertise operating and executing transactions in the private brands and consumer packaged goods categories, and together will develop opportunities for 8th Avenue. By retaining a meaningful ownership of 8th Avenue, Post will participate in 8th Avenue’s growth while preserving the option to pursue a tax-efficient separation of its remaining position in 8th Avenue.
«We are excited about the potential to grow 8th Avenue Food + Provisions,» said Rob Vitale, President and Chief Executive officer of Post Holdings. «We could not ask for a better partner than THL and we are delighted to continue working with Jim Dwyer in further developing the business.»
The transaction is expected to be completed in October, subject to certain closing conditions, including the expiration of waiting periods under U.S. antitrust laws. Post will appoint five of the members of 8th Avenue’s Board of Directors, and THL will appoint one member.
Under the terms of the transaction, Post is expected to receive total proceeds of USD 875 million, fully monetizing the net investment Post has made in its private brands business. Final proceeds are anticipated to be funded by USD 250 million from THL and 8th Avenue’s assumption of USD 625 million of debt. Post will retain 60.5 percent of the common equity in 8th Avenue. THL will receive 8th Avenue preferred stock with an 11 percent PIK-equivalent, cumulative, quarterly compounding dividend and 39.5 percent of the common equity in 8th Avenue. 8th Avenue and its subsidiaries will become unrestricted subsidiaries of Post, and 8th Avenue debt will be non-recourse to Post. Post will use its net proceeds to pay down a portion of its existing approximately USD 2.2 billion term loan, reducing its pro forma net leverage ratio to 5.5x. Post will continue to provide certain services to 8th Avenue under a master services agreement.
For the last twelve months ended June 30, 2018, 8th Avenue had net earnings of USD 77.1 million and Adjusted Ebitda of USD 103.1 million. Adjusted Ebitda was calculated on a pro forma basis to give effect to certain master services fees and advisory fees expected to be paid to Post and THL from 8th Avenue following the consummation of the transaction and excludes anticipated cost synergies resulting from the integration of the existing private brands businesses. Adjusted Ebitda is a non-GAAP measure.