Post Holdings, Inc. (NYSE:POST)
Post Holdings to Acquire Weetabix Conference Call
April 18, 2017 07:00 AM ET
Rob Vitale – President and CEO
Diedre Gray – General Counsel
Bill Chappell – SunTrust
Andrew Lazar – Barclays
Tim Ramey – Pivotal Research Group
Chris Growe – Stifel
Bryan Hunt – Wells Fargo
Brett Hundley – Vertical Group
Jason English – Goldman Sachs
Vishal Patel – BMO Capital Markets
Cornell Burnette – Citi Research
Welcome to Post Holdings Conference Call and Webcast to discuss the acquisition of Weetabix. Hosting the call today from Post is Rob Vitale, President and Chief Executive Officer. Today’s call is being recorded and will be available for replay beginning at 11:30 am Eastern Time. The dial-in number is 1800-585-8367, and the passcode is 9376515. At this time, all participants have been placed in a listen-only mode.
And it is now my pleasure to turn the floor over to Diedre Gray, General Counsel for Post Holdings, for introductions. Ma’am, please go ahead.
Thank you for joining us on today’s conference call to discuss our announcement of our acquisition of Weetabix. With me today is Rob Vitale, our President and CEO. Rob will begin the call with a brief presentation. Afterwards, we’ll have a brief question-and-answer session. The press release and slides that support today’s presentation are posted on our website in both the Investor Relations and SEC filings sections at postholdings.com. In addition, the release and slides are available on the SEC’s website.
Before we continue, please note this call will contain forward-looking statements, particularly the expected timing of the completion of the acquisition of Weetabix and the expected funding sources of the acquisition. These forward-looking statements are subject to risks and uncertainties outlined in our SEC filings. That should be carefully considered by investors as actual results could differ materially from these statements.
These forward-looking statements are current as of the date of this call and management undertakes no obligation to update these statements. This call is being recorded and an audio replay will be available on our website. The call will discuss certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the nearest GAAP measure, see the appendix in the slide presentation.
Also, we would like to remind you that we will hold a call in early May to discuss our second quarter results and we will issue a press release that will contain the details for that call. With respect to the Q&A session at the end of the call, please utilize the time for questions regarding today’s announcement and reserve your Q&A regarding the second quarter results for our call in May.
With that, I will turn the call over to Rob.
Thank you, Diedre. Hopefully you all have the slides; I’ll be referring them throughout the presentation. Again, thank you all for joining us. It really is a great privilege today to confirm that Post has entered into an agreement to acquire Weetabix. This is an exciting time for Post and I hope for our soon to be colleagues at Weetabix.
Over the years, we have frequently been asked about our plans for international expansion and our answer has always been that we wanted to make that leap through a transaction in which we had category knowledge and had some North American connectivity. We consider this the best way to manage the natural risk of international expansion, and Weetabix perfectly fits the bill as the best way for Post to grow internationally. So, we’re quite pleased to be in a position to announce this transaction today.
Starting with the transaction summary on slide five of the filed slide deck. Post has agreed to acquire Weetabix for £1.4 billion. Weetabix is a number two manufacturer in the UK ready-to-eat cereal market but its Weetabix brand holds the number one brand position. We often use the term iconic brand and it tends to be a bit overused but for Weetabix it’s perfectly apt. It is rare to be able to acquire a brand with this level of market share and awareness in a large mature market.
Additionally Weetabix now has Alpen, the number muesli brand and Barbara’s, a well-positioned North American health and wellness brand. We expect Weetabix to immediately accretive to our margins and free cash flow. I’ll walk through some metrics in an upcoming slide.
Much like Post’s cereal business, Weetabix is a high margin, cash generative business. We anticipate the company generating adjusted EBITDA of approximately £120 million and we further expect to realize £20 million in run rate cost synergies by the third full fiscal year following the closing of the transaction. The resulting synergized multiple is quite attractive. Our cash on hand and capacity under revolving credit facilities are sufficient to complete the transaction. We may also look to opportunistically at term capital as we get closer to our targeted closing date. We anticipate closing the transaction in the third calendar quarter.
Moving to slide six. We believe there is compelling strategic and financial rationale behind this transaction. First, Weetabix provides us with the leadership position in the second largest ready-to-eat cereal market in the world and gives us access to the growing UK active nutrition market. We expect to approach the market from a more geographic rather than product focus, meaning we intend to add Post products to Weetabix over time. We have had good success in the U.S. in both cereal and active nutrition and hope to replicate this success in the UK.
Second with Weetabix, we gain strategic optionality for future M&A in the UK and internationally. We expand our international footprint and export capabilities and have unique partnership opportunities in China and Africa. I am particularly pleased with the caliber of our partners. In China, we will work with current Weetabix shareholders Bright Food Group and Baring Private Equity to build upon the foundation they have already established. In Africa, our partner will be Pioneer Foods, a well respected branded food company based in South Africa. We believe these partnerships enable us to participate in emerging market growth in a risk-measured manner.
Turning to financial rationale. Weetabix maintains high margins amid a competitive category, leading to strong free cash flow generation. This should sound familiar as it is consistent with the M&A strategy Post has used now for years. The transaction creates a cost synergy opportunity of approximately £20 million, which we expect to realize by the third full fiscal year following the close of the transaction. We also see meaningful opportunities to cross-sell Post cereal and non-cereal products in Weetabix markets. Last, this transaction is tax efficient as we benefit from the lower UK marginal tax rate.
Slide seven provides an overview of the Weetabix business. Founded in 1932, it has a portfolio of leading brands including Weetabix, Alpen, Weetos, Ready Brek and Barbara’s. Weetabix also operates a private label ready-to-eat cereal business in both the UK and North America. Barbara’s serves as a centerpiece of the North American business, which is focused on organic and non-GMO products. Weetabix’s international business is primarily export driven through distributors with a reach to over 90 countries. The pie chart on the bottom of slide seven provides additional detail on sales by product and geography.
As I mentioned, the term iconic brand can be a bit overused. Slide eight shows why we believe Weetabix is indeed iconic, it holds the number one brand position. In the UK, it has a 40% household penetration and near ubiquitous awareness. For those of you in the U.S. less familiar with the brands, the bottom half of slide eight illustrates the portfolio. In addition to its consumer strength, Weetabix is viewed by its trade partners as a leader in the country and has strong long standing relationships with UK retailers.
Slide nine is an exciting illustration of our evolving business. We are proud of the brands and businesses we own and we are equally proud to add Weetabix. The combined company will own strong food brands across North America and the UK, plus a developing export franchise. We believe both companies bring complementary capabilities to this transaction. We expect the combined company to have pro forma sales of $5.5 billion and pro forma adjusted EBITDA of $1.1 billion.
Moving to slide 10, shows the sources of synergy potential. We believe there are meaningful cost reduction opportunities through leveraging each other’s manufacturing and supply chain where we overlap as well as combining our global procurement purchases. Additional opportunities include optimizing the North American go-to-market structure as well as eliminating duplicate costs across support function capabilities. I would add that the process of combining Post Foods and MOM Brands continues to yield cost savings as we review each business process. We expect that similar approach will yield similar results with Weetabix.
Last, we believe there are potential revenue synergies with this transaction including expanded distribution of Post products into the UK and other international markets, specifically we are excited to participate in the developing active nutrition market in the UK. I mentioned that Weetabix has introduced a protein drink and we expect to be able to add to that portfolio.
There are a number of cash flow characteristics we look for in a transaction and Weetabix meets each of them. Its revenue is supported by a strong stable market position in category, its EBITDA margins are attractive, it has limited capital expenditure need to modest working capital requirements. It is also tax efficient by virtue of its UK domicile.
Slide 11 illustrates the significant a significant free cash flow contribution that we estimate will result from this transaction. First, assuming we can achieve £20 million in cost synergies and Weetabix’s adjusted EBITDA remains consistent with calendar year 2016, we estimate the acquisition will generate incremental adjusted EBITDA of approximately £175 million — excuse me, $175 million.
After considering the net impact of low ongoing capital requirements and incremental interest expense, we expect to convert approximately 55% of the incremental Weetabix EBITDA to free cash flow. Again, slide 11 illustrates the free cash flow increase from existing Post free cash flow to a pro forma combined transaction basis, resulting in an increase of $96 million from the current run rate.
To summarize, and I am on slide 12, we’re very excited about this transaction. It strengthens our portfolio in stable categories and diversifies our portfolio in the new markets. It diversifies our portfolio with the leading iconic UK brand in one of our core categories. It expands our reach to the UK, and other international markets. It creates optionality for us in the UK and in Europe with which to further expand and grow through M&A. It offers meaningful synergy opportunities which we have high confidence in our ability to deliver and it opens up emerging market opportunities in developing situations.
The valuation is quite attractive as we’re paying 11.7 times EBITDA and synergized we are paying 10 times; its immediately accretive to our margins and free cash flow. And finally, as we announced in our press release, Post is continuing to deliver on our current year earnings expectations and we feel optimistic about the balance of the year.
At this point, I will turn the call back over to the operator for questions.
[Operator Instructions] And your first question comes from the line of Bill Chappell with SunTrust.
Thanks. Good morning.
First, kind of question on the synergy potential. I’m just trying to understand where that comes from. And I guess the three year run rate seems kind of lengthy. I mean, maybe can understand how that plays out, but also when you look at the business, I think it’s a slightly lower margins than — I know it’s accretive to the total Post, but versus Post Consumer Brands. Is there operational fixes or improvements to the core business excluding kind of synergies that can be done or is it more or the synergy — I mean, the margin potential of Weetabix basically due because of the private label and because of the mix and because of how it’s manufactured?
So, couple of questions there. With respect to the synergy potential. Within North America, the synergy potential, while not at the same scale is qualitatively similar to the process we undertook with the combination of Post and MOM Brands. We have a full functioning business in North America that fits quite nicely with our consolidated Post Consumer Brands North American platform. Beyond that we also expect there to be benefits merely by having better scale and common commodities including packaging, which is a big source of potential savings. But to your last point, the margin structure on the branded side of Weetabix is very comparable to the branded side of Post Consumer Brands and the private label mix brings down the aggregate margin a tad. But we do think there is some opportunities to look at manufacturing processes, distribution processes, essentially the comment I made about looking at business process in a like manner. We expect to yield some cost reductions that, while not necessarily be the result of synergies may just be the results of combined learning from each organization.
Okay. And then, second just on the cross-selling and the international expansion. I think, I read that one of the issues Weetabix had had was kind of not so great attempt moving into China. So, but you talked about that as a highlight, as an opportunity. So, can you maybe — what’s the plan? Is it continue to push that or is it push other Post products internationally, and how soon would we see kind of cross-selling show up? Is that kind of more of a 2018 timeframe?
So, first, let me be clear that this transaction stands on the merits of its success and its existing markets of which 75% comes out of the UK and another 15% comes out of North America; 4%, 5% comes out of Ireland. So, the non-UK, Ireland, North America business is relatively modest. However, at the margin, we think that those represent tactical opportunities to grow the business. With respect to China, I’ve read some of the reports that it hadn’t gone so well. I tend to disagree with that, because it’s a matter of what the expectation sets were. The business in China has grown very rapidly. And with a long perspective and I think an essential element of this transaction is that we look at this as a permanent component of the Post portfolio, not as a transient investment. So, we have a very long-term horizon.
And looking at emerging opportunities, one must look to China as a consumer opportunity and figure out the best way to go after it. I think they’ve done a nice job in establishing a foundation that has grown rapidly off a small base. What we expect to do is to work with great partners and Bright Food and Baring to surround their existing foundation with additional products from the balance of the Post portfolio to try to grow on a measured risk-managed basis.
With respect to cross-selling in other markets beyond China, we want to have a very thoughtful plan, so I would expect it to have very modest impact in 2018 and start to have more meaningful impact in 2019 and beyond. Where we are most excited is at the developing protein opportunity, specifically our Premier Protein shake, which already is gaining some international traction and we think has the potential to gain more even without the Weetabix opportunity, but vastly accelerated by virtue of the scale that Weetabix provides at retail.
Your next question comes from the line of Andrew Lazar with Barclays.
Good morning, everybody.
Good morning, Andrew.
Or maybe more appropriately good afternoon for you.
For us, it’s afternoon, right.
Yes. I guess two things from me. I guess first off, just regarding valuation, the multiples I guess a bit above what you have paid for a bunch of your other assets and maybe not too dissimilar to that of another even much larger asset that the company was reported to have been looking at more recently and maybe the conversion of free cash flow accretion as you discussed which is significant is ultimately the answer to my question. But maybe any context around why this asset maybe versus some even larger ones that you might have passed on would be helpful for context?
Well, without specifically commenting on past situations, what I would share with you is that larger assets that we’ve been rumored to be competing for, typically involve more of a reverse, more trust transaction structure. So, given the meaningful appreciation in our share price and the perception that we had in the last 18 months that we had not had the share price properly reflected. Even reaching an agreement on value with the counterparty, putting aside the challenge of that piece of it aside, we had a fundamentally weak currency with which to enter into that transaction.
So, while in isolation and looking at valuation in a vacuum, some of the transactions rumored look interesting when you factor in the component of the form of consideration, they become far less so. In contrast, this transaction is a straight forward cash deal, enormously accretive in contrast to some of the more structured transactions. And that’s not to say we would never do a structured transaction; it’s simply those transactions have a time and a place that make them somewhat more challenging to execute versus a transaction like Weetabix.
Secondly, this transaction is as close to core as it gets for us. We’ve had tremendous success in MOM Brands and while the multiple is higher than MOM Brands, the margin structure is also higher, the share is higher in its market. This is far more akin to a leading market player than it is to buying the fourth player in the US market. So, I think the purchase price multiple, the opportunities that are going to be produced beyond the obvious synergies by virtue of what we’ve been able to learn from Post MOM and the fact that we’re able to pay for it in cash and have attractive tax environment, all contribute to a support of a multiple.
Thanks for that. That’s helpful. And then, since you don’t have a whole lot of history with the financials with the business, and a lot of discussion, not surprisingly around the overall UK retail market and such. It would be helpful to just have a little bit of perspective around the level of consistency maybe that you’ve seen in this business over the last — over many years, you have some data for top line EBITDA consideration. Just give us a sense of the consistency of this business?
Yes. Generally speaking, the business has performed extremely consistently in a category that’s been modestly down, so has gained share and maintained revenue and cash flow.
Okay. And then, very last thing would be, not to get too far ahead of ourselves. But just organizational and financial capability to think about further deals going forward. I don’t know whether — obviously there is still some variables and flux around what this will ultimately take your net leverage from and to, but maybe get a sense around financial capacity after this and then organizational capacity for further deals?
Yes. So, let me give you a specific; this will take us to about 5.3 times leverage when completed. Financially, we have done significant transactions from a higher leverage point and rapidly returned to our leverage target, more specifically. I think when we bought MOM, we started from a position of being six times leveraged having come off of Michael and were able to rapidly bring that leverage down to a manageable comfortable level. And by no means am I suggesting we would go back to that level. I’m just trying to highlight that one of the things that I think Post is good at is pivoting into opportunities when they present themselves irrespective of the starting point from a capital structure perspective.
In terms of human bandwidth, one of the virtues of our decentralized model is that while we get very engaged in a specific business unit, at any one time, there is plenty of capacity elsewhere to act. So, it’s a matter of matching up the opportunities with the bandwidth as it occurs. Obviously, this will take some time with our cereal team. At the same time, they’re wrapping up the final stages of the original combination of Post to MOM. So, we certainly have a lot of activity going on in that segment. So, I would expect to look at elsewhere immediately.
Your next question comes from the line of Tim Ramey with Pivotal Research Group.
This deal has been on many companies’ including Post’s radar for a while, I think probably three years. Is there any thoughts you can share about sort of why now? Was this less attractive versus other things that it did make the acquisition list earlier or how should we think about the timing on when you chose to move forward here?
Well, these are projects that have long lead times. So, I would not say that we necessarily thought to do this now, because it was the one opportunity that we wanted to focus on for the last year. What happened was, as I think you all know, we tend to try to manage multiple projects at one-time, so that we can have a very good set of opportunities. We talked to Weetabix about the North American private label business over a year ago and indicated that while we weren’t interested in that business, we would be interested if the opportunity ever rose to acquire the totality of the Weetabix business. And that conversation led to what ultimately culminated this morning. So, I think that these deals have a time and somewhat a life of their own with respect to their maturation and ripening. And this is the right deal now. But, I wouldn’t want to say that there aren’t other attractive opportunities that we are also pursuing. Does that answer your question?
I think so, yes. And just a couple of points of clarification with regard to the adjusted EBITDA that you expect pre-synergies from Weetabix. Is that trailing 12, is that this fiscal or what, how should we think about that?
Well, given the flat nature of the business, it’s approximately the same thing. It’s been adjusted to add back some losses resulting from investments in China, which are now into the China joint venture. But it’s not a — they’re not meaningful differences between what we’ve seen the last 12 months and what we expect the next 12 months.
Okay. And do you expect to create a standalone segment here for international or will this be somehow folded into Post Consumer Brands?
In North America, it would be folded into Post Consumer Brands, but we would expect to form an international segment for the balance of the business, which in all likelihood would include Post products that are currently sold through existing Post segments.
Your next question comes from the line of Chris Growe with Stifel.
I had just a question for you broadly about acquisitions and even gone through a relatively, a long period of time without an acquisition in the U.S. market. We’ve talked before about high multiples overall. Was this the best value you could find and I don’t want to pin you down just on this transaction, but to say that, is this where you’re seeing better opportunities is outside the U.S. versus in the U.S. market or is that too wide of a generalization?
I think it’s a bit too wide of a generalization. We may be, unlike others, think that there are a lot of opportunities in cereal. We’ve had good success there, particularly coming from MOM transaction and want to try as much as we can to continue to use the muscle memory that has been learnt from that transaction. So, when you look at cereal opportunities, they are relatively few to pursue. And when you combine the knowledge and comfort with the category, with the brand strength of this one, it felt like a natural transaction for us to pursue. All the other things about optionality created from it, flow from that initial position. But at the core, we view it as a cereal company buying a cereal company and opportunities ought to flow from that.
Okay. And then, could you talk about either the recent or expected rate of growth for sales in EBITDA for Weetabix, what’s a good rate of growth for this business over the next several years?
The recent rate of growth has been zero to negative half with EBITDA growth being zero to positive half or so. It’s been essentially similar to the US serial category. We think there is better opportunities for EBITDA growth with cost management. But there is also a bit of a reflation trade potential that we’re starting to monitor that could cause a bit more sales growth but we underwrote this investment in the same way we would underwrite a cereal investment in the US, which is an ongoing flat topline with cost reduction as the primary driver of EBITDA growth and then the opportunity to use the sales force to grow around it.
Okay. And just one quick one if I could ask. If you think about Post being — the Post brand, sorry, being sold in the UK or Weetabix building up in the US, to me, that sounds like an expensive endeavor just to build brands that may need quite a bit of consumer knowledge there. Is that the right way to look at that? This is like a long-term opportunity but is there an expense there that just gets built in over time?
Yes. Yes to both. It’s a long-term and there will be some expense, but I think that it’s important not to over develop expectations around what we’re describing. We’re looking at this SKU by SKU. We think Grape-Nuts has some potential in the UK and in Europe because it’s a non-GMO product. It already has some distribution here. So, it’s expanding in existing distributed products, it’s not bringing Post wholesale into new markets. We think that Premier Protein has potential in the UK because it’s already making inroads into the UK separate from Weetabix. So, we are mostly looking at trying to take products that we are already marketing in the UK and give them added distribution muscle rather than rely on incremental consumer spending to all of a sudden drive demand. So, it’s not — given the way we use leverage and given the predictability of cash flow, we don’t need dramatic incremental revenue growth in order to make our returns work. What we need is blocking and tackling modest growth in order to deliver returns to the leveraged equity.
Your next question comes from the line of Bryan Hunt with Wells Fargo.
Thanks for your time. Rob, I was wondering if you could just talk about your philosophy now around currency hedging, given this will introduce a very large component of sterling earnings to the P&L?
Sure. So, let me start with what we plan to do is to directly borrow approximately half of the purchase price in pound sterling. That will either be done by directly accessing the UK market or through a currency swap will determine that based on ultimate cost in the next — in the period between signing and closing of the transaction. Along the way for the last several weeks, we’ve been accumulating pound sterling just a dollar average the portion of the purchase price that is not ultimately going to be measured in pound sterling. So, then post transaction, obviously the portion of the price that is borrowed in sterling will be a natural hedge. We also have natural hedges in the balance of our business that are positively tied to dollar strength versus pound weakness. And since then finally, we would look at currency like we do any other exposure in our commodity basket and take regular intervals of hedging as we team them appropriate. But, the first step is to create that natural hedge by borrowing roughly $700 million in pound sterling.
And then, my next question is and you’ve discussed acquisition opportunities and kind of history at great length this morning. But as you look at this as a platform for opportunities throughout the UK and Europe, are you more focused on adding products and capabilities that are in line with your current portfolio or do you think there is richer opportunities outside of your current capabilities? And that’s it for me. Thank you.
Well, as I think you know, we tend to be opportunistic. But also if you look at our behavior, really since we added the Michael platform in 2014, we’ve been very focused on strengthening our silos. So, if you look at product as defining our silos, we’ve been very focused on strengthening them. If you look at international as a new silo, I guess you could argue that’s a separate leg. But I think the way to think about it is, if we see something that is growing fast that we think makes sense to add as a silo, we would look at it, but given the challenge to find growth, we’re far more likely to justify returns and the multiple required to acquire an asset by investing in something near into our portfolio where we have some synergistic opportunity to deliver.
And if I could add one more. When you look at your scale now, $1.1 billion of pro forma EBITDA, it really takes an acquisition of great scale or kind of move the needle back up to that five times leverage range. I mean, can you talk about whether your new scale kind of adjusts your leverage targets going forward?
So, long as our cash flow characteristics remain consistent with the current portfolio, we tend to believe that between 4.5 and little over 5 is the appropriate long-term way to capitalize the business in a manner that allows you to achieve attractive equity returns, provide a comfort level for the debt providers in the context of a limited growth environment. So, I don’t necessarily think the incremental size changes our outlook on capital structure.
The next question comes from the line of Brett Hundley with the Vertical Group.
First, a question on just back to the synergy. Is that timeline fairly linear or should we expect some lumpiness as it relates to cost synergies?
No, you should expect some lumpiness with the bulk of it being kind of in the middle of that timeframe.
Okay. And then, just my other question for you is back to a few others that have been asked on just the global or international nature of this. And it’s interesting to hear that there was at least a point where you looked at the North American piece or just the North American piece of Weetabix, and certainly that piece had cereal which you’re comfortable with and you’ve talked to that as an asset of why you’re looking at Weetabix in total. So, you could have just gone for the North American piece in a category that you’re comfortable with, yet you had talked about wanting the entire asset. It’s been asked, I guess in different ways. But, was there a need to go global or international in your mind right now, some other type of urgency, just be curious if you could expound on that? Thank you.
I wouldn’t call it an urgency. What I would characterize it as a comparison between the amount of time effort and even percentage risk, obviously dollar risk is different of taking a small business and trying to carve it out of a bigger business versus acquiring the totality of the business is not as different as you would think. So, we frankly just decided that buying the private label business in North America that the squeeze wasn’t worth the juice. So, that if we were going to undertake the effort to understand the business and to do the diligence, we would rather do something that was material and move the needle. And that it was as simple as that.
Your next question comes from the line of Jason English with Goldman Sachs.
So, a couple of questions. First, let’s keep you expounding. You mentioned that this is the beginnings of a UK platform, really some interpret it to mean the beginning, since this is an asset, not a platform yet. Can you talk a little bit more about your strategic vision and how this is an enabler of that?
Yes. And I don’t want to suggest that we are focusing on UK or other opportunities at the expense of U.S. opportunities. What — I think you know us well enough to know that what we ultimately are is opportunistic animals. And when we — what this does is allows us to look at a broader array of opportunities and compare them to a different set. So, we look to — what does Weetabix bring us? It brings us brands. It brings us — beyond that though, it brings us a fully formed sales force, a fully formed distribution model, a fully formed manufacturing model, all of which has potential to scale over adjacent and less adjacent categories. So, it provides us opportunity to leverage assets in a manner that hopefully will deliver effective returns if the opportunities develop. But, I don’t want to give you the impression that our focus has now shifted from a domestic focus to international focus. What has changed is our opportunity set has expanded. So, we now have the ability to compare both where we previously didn’t.
And with the financing you plan to carry with this deal. Correct me if I’m wrong, I think that’s going to leave you with around $700 million of cash in your balance sheet. A, is that right? B, why do you need to carry so much cash and should we expect to deploy that in the immediate future?
We have not made final determinations on exactly how we’re going to access the term market, if at all. I think it’s likely that we will some. So, I can’t tell you the ultimate level of cash that we would have on hand. There is no need to raise cash. But what I would share with you is that it’s a much more effective way to pursue M&A when we have. When we are starting at the leverage ratio that we start from the ability to demonstrate total capacity to transact is a very quick way to separate ourselves from the pack of financing contingent buyers. And it allows us to be a much more credible buyer in array of different situations which if we don’t have the capacity on hand, many sellers would view us as not able to transact, and we’ve missed opportunities.
Thank you for that. Last question from me and then I’ll pass it on. And this one maybe a little bit unfair. But there are some filings out there on Weetabix limited where we’ve got some fiscal 2015 financials. But there seems to be a pretty big discrepancy versus what those show and what you’re saying today, particularly revenue. We had around £346 million, £347 million of revenue in 2015 per these filings. You’re seeing 410 today. Can you help us understand the discrepancy, if at all you’re familiar with it?
So, we’ve done extensive diligence. I’d have to go back and look at the specific filing you’re talking about but the 410 is the 2016 number and the 2016 number didn’t grow much from the 2015 number. So, I’m thinking there is likely a classification issue but I would need to follow up on the specifics of that. I can’t tell you that in both 2015 and 2016, the way we get to the adjusted EBITDA includes giving credit for investment spending in China and some investment spending on the go drink that is now breakeven. China of course is being put in the joint venture. So, the way to think of the EBITDA number is largely a UK-based business EBITDA with some adjustments that we will reconcile. But to give you the revenue number, I’m more familiar with 2016 and it’s been very heavily diligent. So, I’m going to speculate that it’s classification issue.
Yes, probably is. Alright, thanks a lot guys. I’ll fly with others. See you.
Your next question comes from the line of Ken Zaslow with BMO Capital Markets.
Hi. It’s Vishalon for Ken. You had talked a little before about your expectation for a flat topline from Weetabix. Are you acquiring any plants in this transaction? And can you talk a little bit about the current utilization of these plants?
We are acquiring three plants in the UK and two plants in North America. And the utilization varies considerably by product category, which is in fact the identical situation of Post where some of our lines are running near capacity and some have considerable excess capacity. So, attendant with the realization synergy, we certainly would review the entirety of the manufacturing footprint, recognizing that we currently have no manufacturing — we Post have no manufacturing in the UK.
Our final question comes from the line of Cornell Burnette with Citi Research.
I just wanted to get a quick assessment maybe on how you would compare the UK cereal market to the US market and specifically in pricing discipline and kind of the ability of the markets to get pricing when commodities are moving higher or hold on their pricing when commodities are a bit lower. It just seems like with the MOM deal, we’ve got a lot of discipline that’s kind of we’ve seen occur in the US market over the past couple of years. Now, we just wanted to know what was your take on the UK market in that aspect?
While the US market is certainly no walk in the park competitively, the UK market is arguably a bit more competitively intense with the higher degree consolidation and the more advanced penetration of the discounters. But that is largely baked into the performance of the Company. So, the trends have started to slow with respect to discounted penetration of UK retail. And the Company has manage the process well, retained a considerable amount of price discipline along the way and we think that one of the benefits that the brand provides is the ability to manage price more effectively than even some of the brands that we own in the US. So, we feel confident that we are going to be able to navigate commodity changes that could result from some of the uncertainty around currency because of the strength of that brand.
We’ve reached our allotted time for questions and answers. I will now turn the conference back to Mr. Vitale for any other closing remarks.
Thank you. Again, thank you for joining the call. Thank you for your ongoing support and interest. And I think we will expect to provide additional color as it develops between now and our quarterly call in a couple of weeks, we’ll be out with the date formalizing that shortly and look forward to talking to you again quite soon.
This concludes today’s conference call. You may now disconnect.
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