Del Monte Pacific Ltd (ADR)( (OTCMKTS:PDMXY) entered into an agreement to buy the consumer food business of closely held United States foodmaker Del Monte Foods Co. for $1.68 billion. The deal will help the Asian firm to gain traction in the United States where consumer spending climbed in August for straight four months, according to a report from Bloomberg.

Del Monte

Significant boost to US operations

The deal will give Del Monte Pacific Ltd (ADR)( (OTCMKTS:PDMXY) access to food brands like Del Monte Foods, Contadina, S&W and College Inn in the United States. With this deal, it will get rights for canned fruit, vegetable and broth brands as part of its business, which has customers like Wal-Mart Stores Inc. These segments contribute around $1.8 billion in sales.

Del Monte Pacific Chairman Rolando Gapud said today, “The U.S. was one of few key markets where our company did not have a direct presence nor have its own brands.”

Del Monte Pacific said in a statement that the deal will boost its business in the United States as it operates pineapple plantations, as well. Del Monte Pacific supplies processed pineapple to Del Monte Foods.

Del Monte Pacific to face intense competition

Del Monte Pacific Ltd (ADR)( (OTCMKTS:PDMXY) follows a strategy where it overpays to acquire the companies and in turn gets better returns in the emerging markets where it holds strong traction, according to Siyi Lim, a Singapore-based investment analyst at OCBC Investment Research told Bloomberg.

Lim said that the economy in the United States is catching up gradually, but there is an intense competition. He added that ultimately these companies sell consumer staples, and there “is a limit to what the consumers can buy.”

Del Monte Pacific will fund the deal through a $930 million long term loan and by issuing new stock in the newly built unit to operate the business, as per the filing. The company has a market capitalization of S$1.2 billion ($930 million), according to Bloomberg data.

Del Monte brand to focus on pet food industry

The Del Monte brand was first established in California in 1892, but was split in the 1990s in a buyout carried by private equity firm KKR & Co. Del Monte Foods Co., which is partly owned by KKR, plans to focus on the pet food industry after spinning off its consumer business.

Shares of Del Monte Pacific Ltd (ADR)( (OTCMKTS:PDMXY) surged 11 percent to 30 pesos. Year to date the stock is up 10 percent, compared to 12 percent advance on the Philippine Stock Exchange Index.