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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
February 27, 1997 (February 26, 1997)
Date of Report (Date of earliest event reported)
CPC INTERNATIONAL INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 1-4199 36-2385545
(State or Other Jurisdiction of (Commission File Number) (IRS Employer
Incorporation) Identification Number)
International Plaza, P.O. Box 8000
Englewood Cliffs, New Jersey 07632-9976
(Address of Principal Executive Offices) (Zip Code)
(201) 894-4000
Registrant's telephone number, including area code
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Item 5. Other Events.
Reference is made to the press release issued by Registrant on February
26, 1997, filed herewith as Exhibit 1, and to the presentation by Registrant to
financial analysts on February 26, 1997, filed herewith as Exhibit 2, relating
to the approval in principle of the spin-off of the corn refining business of
Registrant to its shareholders. Each of Exhibit 1 and Exhibit 2 is incorporated
by such reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
Exhibit 1 Registrant's Press Release issued on February 26, 1997.
Exhibit 2 Registrant's Presentation to financial analysts on February 26, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: February 27, 1997 CPC INTERNATIONAL INC.
By: /s/ HANES A. HELLER
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Hanes A. Heller
Vice President Legal Affairs
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EXHIBIT 1
CONTACT: Gale L. Griffin 201/894-2407
Vice President, Corporate Communications
CPC INTERNATIONAL TO SPIN OFF ITS CORN REFINING BUSINESS
ENGLEWOOD CLIFFS, NJ, February 26, 1997 -- CPC International Inc.
(NYSE:CPC) today announced that it intends to spin off its corn refining
business to CPC shareholders as a new independent publicly-owned company. The
objective of the spin-off, according to C. R. Shoemate, CPC's chairman and chief
executive officer, is "to give both CPC and the new corn refining company the
focus, flexibility, and resources they need for faster growth of sales, volumes,
and profits."
The new company, with businesses in 18 countries, will comprise CPC's
corn refining operations in the United States, Canada, Latin America, Asia, and
Africa; its interest in a joint venture in Mexico; and other joint venture
interests, as well as licensing and technical agreements, chiefly in Asia and
Africa. The sales of these operations, excluding the sales of non-consolidated
joint ventures, were $1.5 billion in 1996.
CPC INTERNATIONAL TO FOCUS EXCLUSIVELY ON BRANDED FOOD PRODUCTS
Following the spin-off, CPC International will be a global branded
packaged food company consisting of its existing businesses in branded grocery
products, baking, and foodservice. These businesses, with sales of $8.5 billion,
reported strong performance in 1996. Their combined net income, on an estimated
pro forma basis, increased more than 20% compared to 1995.
CPC's branded grocery products and foodservice businesses, with
operations in 62 countries worldwide, market such well-known products as
Hellmann's and Best Foods mayonnaise, Knorr soups, sauces, and bouillons, Mazola
corn oil, and Skippy peanut butter. Most of these brands are household names in
North America, where CPC's sales of packaged foods were $1.7 billion in 1996.
CPC's baking business, essentially all in the United States, makes and
markets Thomas' English muffins and bagels; Entenmann's sweet baked products;
Freihofer's, Oroweat, and Arnold breads and rolls; Boboli pizza crusts; and
other premium fresh baked products.
While CPC has a large and profitable packaged food business in North
America, 60% of its total packaged food business is in Europe, Latin America,
Asia, and Africa. In Europe, where CPC's operating income grew 20% in 1996, CPC
reported sales of $3.7 billion in 1996 from the Knorr, Hellmann's, and other
market-leading brands. The company's expansion in Western
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Europe and more recently in Eastern and Central Europe has been rapid and
successful, illustrating the extendability of these brands and the company's
expertise and experience in new market expansion. CPC also has fast-growing
packaged food businesses in Latin America and 13 Asian countries, including
three joint ventures in China, with total sales of $1.5 billion.
NEW CORN REFINING COMPANY AMONG TOP INTERNATIONAL COMPETITORS
CPC is the third largest corn refining company worldwide, including its
partnerships around the world. It is the global leader in dextrose, a high
value-added corn refining product, and in corn starch. In North America, where
it operates 6 corn refining plants, CPC is the fourth largest corn refiner, with
strong regional positions. In Latin America, CPC is the largest corn refiner,
with a market share of more than 60%. The new company will be well positioned to
benefit from recent open-market agreements and the trend toward global suppliers
serving global customers.
Products of the corn refining business include dextrose, high fructose
corn syrup, other corn syrups, starches, oil, animal feed ingredients, and other
products used by a variety of industries.
The tighter margins this business is currently experiencing in North
America, related in 1996 to expensive corn and in 1997 to overcapacity in the
industry, are not expected to continue beyond the medium term. It is expected
that North American corn refining capacity and demand for corn refining products
will gradually return to a more normal balance. The company's corn refining
businesses in Latin America and Asia are expected to continue to show good
growth and profitability.
Although details of the new company's financial structure have not yet
been determined, its expected cash flow and planned debt level will allow for
continued healthy investment in future growth. The new company will issue its
own debt, and transfer to CPC the proceeds, which will be used to reduce debt
related to the transferred corn refining assets. CPC does not, therefore, expect
to assign any of its existing debt to the new company.
TOP MANAGEMENT APPOINTED FOR NEW COMPANY
Konrad Schlatter, currently senior vice president and chief financial
officer of CPC International, will be chairman and chief executive officer of
the new corn refining company. Samuel C. Scott will continue as president and
chief operating officer of the new company and will be responsible for the
day-to-day operations of the business.
BRIGHT FUTURE FORESEEN FOR BOTH COMPANIES
C. R. Shoemate, chairman and chief executive officer of CPC said, "The
result of this spin-off will be two independent, financially-sound companies,
each with the focus, products, market positions, and international experience to
succeed in its industry and generate attractive returns.
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"We believe that our global packaged food business has excellent
opportunities for fast and profitable growth, based on its great market-leading
brands and their proven power in both established and new markets around the
world. We expect that the company will continue to build its Knorr, Dressings,
and Foodservice businesses aggressively, expand geographically, and increase its
high level of innovation around the globe, while at the same time maximizing the
efficiencies of a global corporation.
"Our corn refining business, too, excels as an international competitor
and has good prospects for attractive growth both in existing markets and
through further geographic expansion. I have no doubt that Konrad Schlatter and
Sam Scott are the right senior management team to deliver the increases in
competitiveness and profitability that will make the new company a global corn
refining industry leader. Konrad Schlatter brings the solid financial and
administrative expertise that has been clearly evident in his service as CFO of
CPC and in his active participation in the overall governance of the
corporation. He also has extensive international experience as an operating
manager. Sam Scott, who has spent his entire career in corn refining, has vast
experience and a record of success in the industry and as a leader within CPC.
"The separation of the two businesses will enable each company to focus
exclusively on its own needs, thus improving its potential to grow and prosper.
The historical synergies they once shared, including the leveraging of our
worldwide corn refining positions for international expansion of consumer foods,
have gradually diminished. Indeed, as the two businesses have become
increasingly different from and independent of one another, their relationship
under one management and corporate structure has grown more restrictive than
helpful. As completely separate companies, each with a strong financial
structure, these businesses will have the focus, flexibility, and resources they
need for faster growth of sales, volumes, and profits."
TRANSACTION SUBJECT TO APPROVAL OF DEFINITIVE PLAN BY BOARD
AND A FAVORABLE IRS RULING
The transaction is expected to be in the form of a distribution of the
shares of the new company and may be preceded by an initial public offering of
stock in the new company. It is subject to approval of a definitive plan by
CPC's Board of Directors and receipt of a ruling by the Internal Revenue Service
that the transaction will be tax-free to CPC and its shareholders.
The transaction is expected to be completed by year end.
Salomon Brothers Inc. and Merrill Lynch & Co. are advising the company
on the transaction.
ABOUT CPC INTERNATIONAL: CPC International Inc. is among the largest U.S. food
companies and ranks as one of the 100 largest industrial companies in the U.S.,
with sales of $9.8 billion in 1996. Best known among CPC's U.S. products are:
Hellmann's and Best Foods mayonnaise; Mazola corn oil and margarine; Skippy
peanut butter; Knorr soups, sauces, and bouillons; Entenmann's sweet baked
products; Thomas' English muffins; Arnold, Brownberry, Freihofer's, and Oroweat
breads; Boboli Italian bread shells; Mueller's pasta; and Karo syrup. CPC's
global Knorr brand comprises one of the world's most extensive lines of
products. CPC is one of the nation's most international food companies, with
operations
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in 62 countries. CPC is also one of the largest corn refiners, with operations
in North America and Latin America. For more information, visit CPC's Web site
on the Internet at: http://www.cpcinternational.com.
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EXHIBIT 2
ANALYSTS MEETING SCRIPT
Good Morning. I'm very pleased to meet with you this morning, and I
apologize for any inconvenience our postponing the meeting may have caused you.
I think that when you hear what I am about to report this morning, you will
understand why we delayed the regular quarterly meeting.
This morning our Board of Directors authorized CPC's
management to pursue a plan to spin off our corn refining business to
shareholders as an independent company. Just a few minutes ago, a press
release, announcing the plan, crossed the wire, and I am now at liberty
to discuss it with you.
I'd like to give you the basic facts now and then answer your
questions, so that you will have a thorough understanding of our plans by the
time you head back to your offices. Copies of the press release itself will be
available at the door.
The objective of the spin-off is to give both CPC and the new corn
refining company the focus, flexibility, and resources they need for faster
growth and improved returns.
In some ways this is a dramatic step. It means severing ties that are
many decades old and have been beneficial to both businesses.
But more essentially this spin-off is the next logical step in a
process that has been underway for some time now.
I'm referring to the gradual separation of our consumer foods and corn
refining operations over the last few years, as their common heritage in
corn-derived products has become less meaningful and their roads to opportunity
have diverged.
This is the next logical step, and in fact we have been seriously
considering it for some time. And we are absolutely convinced it is the right
step -- for both businesses.
When the spin-off is completed, about 10 months from now, CPC
International will be a highly focused, streamlined $8.5 billion company
exclusively in the business of making and marketing branded packaged food.
Sixty percent of the business will be outside of North America. It will
comprise our current grocery products, baking, and foodservice businesses in
North America, Europe, Latin America, Asia, and Africa. The combined net income
of these businesses, on an estimated pro forma basis, rose more than 20% in
1996.
In other words, we believe the new CPC will be a powerhouse global
competitor, with tremendous opportunities to grow aggressively in every region
of the world.
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The new corn refining company will also be a strong international
competitor, with businesses in 18 countries and worldwide leadership in both
dextrose, a high value-added product, and corn starch.
The new company will comprise CPC's corn refining operations in the
United States, Canada, Latin America, Asia, and Africa; its interest in a joint
venture in Mexico; and other joint venture interests, as well as licensing and
technical agreements, chiefly in Asia and Africa.
Sales from these businesses, excluding the sales of non-consolidated
joint ventures, were $1.5 billion in 1996.
About two-thirds of CPC's -- and hence the new company's -- corn
refining business is currently in North America, where it is the fourth largest
competitor in the market in terms of grain processed. I would add that, its
fourth rank position notwithstanding, it is the number one dextrose and starch
producer in North America and has strong positions in regional markets.
In Latin America, the business is the leader, with a market share of
more than 60%. This positions the new company to take advantage of recent open
market agreements and the trend toward global suppliers serving global
customers.
In short, we believe this new company will be successful and that it
will benefit significantly from its freedom to pursue its own strategies and
growth opportunities within its industry.
These then are the basic facts of the transaction, but before opening
the meeting up for questions, I would like to cover some issues we expect to be
of interest to you.
First, Konrad, would you comment on the expected financial structure of
the two separate companies.
(Konrad)
CPC has a strong financial structure. We have an important equity base,
currently about $2.3 billion and growing. The company's total debt is currently
about $2.8 billion, and during the year is expected to fall to roughly $2.6
billion.
We expect that our debt/capitalization ratio during the year will be in
the range of 50-55%, and on a market capitalization basis it is now a little
under 20%. Interest coverage in 1997 is expected to be 6.5 times. Our debt
rating has been a single A+ for several years.
The new corn refining company will issue its own debt in the range of
$300 - $400 million, and the proceeds will be transferred to CPC in connection
with the net assets transferred.
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This will reduce CPC's debt accordingly, and so we don't expect the CPC
financial ratios I just mentioned to be much different right after the
separation. Thereafter these ratios should hold or improve. On this assumption,
we believe we should be able to maintain the single A+ rating.
For the new corn refining company, with a relatively low debt load, we
expect an "investment grade" rating. We expect the corn refining business to
produce strong cash flow right from the time of separation, and so we believe we
can maintain an investment grade rating long term.
(Dick)
Thanks Konrad.
I would like to comment on the management of the two companies.
We do not expect to be making any major changes in the overall
management of the packaged food business -- that is, in CPC International.
However, there will certainly be some streamlining in that business to
eliminate functions or positions that become unnecessary because of the
separation of the companies. And this will also be an opportunity to look
closely at the entire organization to make sure it is in top trim as a
first-rank global competitor.
For the corn refining business, Konrad Schlatter, whom you have long
known as CPC's senior vice president and chief financial officer, will become
chairman and chief executive officer of the new company.
Konrad brings not only his well-proven financial expertise to the new
enterprise, but also the strategic expertise, operating experience, and enormous
dedication and wisdom that have been so well demonstrated in his more than
30-year long career with CPC.
Sam Scott, currently president of CPC's corn refining business, will be
president and chief operating officer of the new company, in charge of the
day-to-day operations of the business.
Sam has spent his entire career in corn refining and has a long record
of success and experience in the industry and as one of CPC's most effective
leaders.
I personally believe we could not have found better leaders to take the
helm of this new company. Konrad and Sam will make a powerful and well-balanced
team, and I am confident that under their leadership the new company can deliver
the increases in competitiveness and profitability that will make it a global
corn refining leader.
Now let's take a few minutes to talk about the business strategies of
the two separated businesses.
Most of you, I'm sure, know our consumer foods strategy pretty well.
During the past few years we have stated it frequently and clearly.
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It is to build strong leadership positions in our three core
businesses: Knorr, Dressings, and Foodservice in the 60 plus countries where we
now have businesses and to continue seizing opportunities to expand these cores
aggressively in new and emerging markets.
A small number of regional key businesses, for example Baking, also
receive priority support and are candidates for upgrading at some point in time
to core businesses, which then means expanding them into other CPC regions.
Our strategy includes making targeted acquisitions in core and key
businesses that can be leveraged throughout CPC.
Along with this strategic focus comes continuing emphasis on cost
reduction in every aspect of our operations.
This strategy has been highly effective, and the business separation
both affirms and reinforces it, allowing us to further increase our focus and
pick up speed.
The corn refining business's primary strategy is to focus management
attention on the recovery of solid profits in North America, as well as to
continue to produce strong cash flow and maintain a sound financial structure.
The business will continue to invest in product and geographic areas
that are critical in terms of profitability or strategic position and produce
early, attractive returns. It will also increase export activities using
existing affiliate network and strategic relationships to absorb North American
overcapacity.
In the medium term, when North American profits are again at a good
level, the company's strategy is to step up investments into new markets in
order to secure continuing profit growth, using its unique international
strengths.
How the two businesses perform in terms of earnings is what counts, so
let me give you here my view first on 1997 with the businesses combined and then
on each business for the years beyond.
1997 will clearly be a transition year. The current market consensus
puts our '97 earnings in a range of $4.30 - $4.35 for the combined company, and
this is roughly how we see the year unfolding ourselves.
During this year, in preparation for the separation, we will review
administrative and corporate costs in both businesses. The objective is to
ensure that overall these costs will not increase, despite the need to add a
number of functions to the corn refining business as a result of the separation,
such as governance, treasury, and tax. Indeed, as I mentioned earlier, we will
also consider opportunities for reducing costs.
Looking beyond 1997, I would expect that both businesses will have the
ability, the focus and drive to grow very well.
The corn refining business should show attractive growth for several
years, starting off a low base and with a clear focus on short and long-term
profitability.
For the consumer foods business, we are targeting to grow in future at
double digit rates. We have the products and the people and financial resources
to accomplish this and we have established businesses in the major growth areas
of the world.
Thank you. And now, let me take your questions.
