CHERRY HILL, N.J. — Vlasic Foods International, the pickle marketer that also owns Swanson frozen dinners and Open Pit barbecue sauce, sought bankruptcy protection on Monday and reached a deal to sell its pickle and barbecue sauce businesses for $195 million to foodmaker H.J. Heinz Co.
Vlasic, which was spun off by Campbell Soup Co. in 1998, had borrowed about $560 million to pay Campbell as part of the spinoff.
But it struggled under weight of the big debt and was unable to make a $10 million interest payment earlier this month.
All of Vlasic Foods' U.S. operating subsidiaries filed voluntary Chapter 11 petitions Monday in bankruptcy court in Delaware, said company spokesman Kevin Lowery. None of its subsidiaries or affiliates in Canada or the United Kingdom is included in the filing.
Lowery said the bankruptcy process will allow other possible suitors to bid on the condiments and barbecue sauce businesses so that better offers can be considered.
"There will be another auction process in which anybody interested in the business now sees the price and terms that Heinz has offered to us and they would be in a position to counter that," Lowery said.
The sale of Vlasic's pickle and barbecue sauce business is subject to approval by the court. But if the court approves the sale to Heinz, the Pittsburgh-based buyer would become the nation's biggest pickle producer, said Joseph Jimenez, the president of Heinz's North American business.
"The Vlasic pickle and Open Pit barbecue sauce businesses are in the same aisle of the supermarket as ketchup, which will enhance our overall leadership" in condiments, Jimenez said.
Vlasic pickles, the top selling retail pickles in the United States, and Open Pit had combined fiscal year 2000 sales of approximately $300 million.
"The bankruptcy filing will enable us to consummate the sale of the condiments and barbecue sauce businesses and free us to address the future of the North American frozen foods and our other businesses," said David Pauker, managing director of Goldin Associates, which is helping Vlasic implement its financial restructuring.
Reaction from analysts was mixed. Ann Gurkin of Davenport & Company said the deal could produce savings for Heinz and offers the company a complementary product, but said she was troubled by Vlasic's "weak sales and poor inventory management."
John M. McMillin, analyst with Prudential Securities Inc., said Heinz is getting a good deal.
"They bought a leading brand in Vlasic pickles and a very good brand in Open Pit. They bought it on the cheap and I think they'll be able to integrate it into their existing business and make a pretty good return," McMillin said.
McMillin said Vlasic's management team was "dealt a bad hand" with the $560 million in debt from the Campbell spinoff.
Pauker said Vlasic's chief problem has been its unmanageable level of debt.
"The bankruptcy relieves us of the burden of servicing significant portions of our debt and gives us the opportunity to find a permanent solution to the company's balance-sheet problem," Pauker said.
Pauker said Vlasic will continue to explore the possible sale of one or more of its remaining businesses.
Vlasic also makes Swanson pot pies and microwavable breakfasts and has two businesses in the United Kingdom: Freshbake, which makes frozen meat pies and sausages, and Stratford-Upon-Avon, which makes canned and jarred beans, pickles, fruits and vegetables.
The company lost $30 million in the fiscal year 2000 and was forced to cut 45 jobs at its suburban Philadelphia headquarters.
CEO Robert F. Bernstock, who had led Vlasic since the spinoff, resigned Jan. 10.
Vlasic and Open Pit have more than 550 full-time and 450 seasonal employees, principally at two manufacturing facilities located in Imlay City, Mich., and Millsboro, Del. The company said in a statement employees will continue to be paid in the normal manner.
Heinz shares closed up 33 cents at $43.95 in trading Monday.