Heinz to Distance Itself From Remedia

The international foodstuffs giant Heinz is considering lowering its profile in Israel following the scandal over Remedia baby formula, which has been blamed for the deaths of two infants from vitamin deficiency.

Heinz, which has a 51 percent stake in Remedia distributor Heinz Israel, is considering concentrating all its local activity in Star-Kist Food D'or. Heinz bought a 51 percent stake in Food D'or Trade in November 2000 from Oded Gross and Michael Mittelman, who still own the remaining 49 percent of the company. Moving all Heinz activity into the company has been discussed in the past.

In 1999, Heinz took a 51 percent stake in Remedia Foodline according to a company value of $20 million. In a later deal Heinz, which counts the canned tuna brand name Star-Kist among its dozens of well-known names, bought into its local distributor, Food D'or. It was widely expected in the food retail sector that Star-Kist Israel's operations would be folded into Foodline.

The unification would have boosted Foodline turnover from $50 million to $70 million annually. However, Star-Kist Food D'or continued to operate independently. Sources close to the company say Heinz became convinced that Food D'or had an edge in marketing its tuna. The company sells canned fish and owns the Yona plant it bought in 2000 from local foodstuffs distributor Pri Hagalil.

According to Star-Kist CEO Gross, the company sells NIS 100 million in goods annually. "Food D'or is a very focused company, we only distribute canned fish." Heinz Israel chair Moshe Miller said earlier this week that the company sells $50 million annually and that 10 percent of that stems from Heinz products - ketchup, mayonnaise and various relishes. Miller said 70 percent of the company's sales are in Remedia products.

The company also sees 10 percent of turnover from distribution of additional products such as those produced by Shkedia and Lotus Cakes, both Heinz Israel holdings. The company also acts as a distributor for a number of other companies, such as Zeita.

Sources close to Heinz Israel said the company's working assumption is that it is unlikely the Remedia brand name will survive the crisis. If the Remedia name disappears off Israeli shelves, Heinz Israel will lose 70 percent of its sales. The company doubts it will be financially worthwhile to maintain two companies with combined turnover of NIS 175 million.

The sources say it is likely Heinz, which has considered moving all its marketing activities into Star-Kist Food D'or in the past, will merge the operations of the two.

They say Heinz had considered the move previously because executives felt Heinz Israel was involved in marketing too many non-Heinz products and lacked focus. The international parent company has closed down many operations worldwide in favor of a focused business approach.

Apparently the contract between Heinz and the Food D'or shareholders grants Heinz an option on the remainder of the company. It is thought the option is valid to the end of 2005 and the Food D'or owners hold a parallel put option. Miller also has a put option on his 49 percent stake in Heinz Israel, but the company's current straits make the deal untenable.

In August 2003, Gidi Landsberger was appointed chief executive of Heinz Israel, which includes Remedia, ForBaby, Foodline and Shkedia. Landsberger, then CEO of Remedia, took the reins from Miller. His appointment was part of a process slated to unite the group under a single management structure to reduce costs and better focus operations.

Sources say one reason for the move was to pave the way for Miller's exit, and at the time the parent Heinz company examined the possibility of marketing Heinz products through Star-Kist Food D'or.

Gross refused comment on negotiations between himself and Heinz that preceded the Remedia crisis, or on later talks regarding the merger of Heinz operations, or the put and call options.