Galaxy Foods explores possibility of sale
to Goldman Sachs to investigate the potential sale of the company
and to contact prospective buyers.
The maker of health-promoting dairy alternatives (both plant-based and dairy-derived) has had an unsettling few years and has grappled with the effects of high casein prices, the low-carb fall-out, and two CEO changes in 18 months.
"During the past several months, management has been working diligently on several fronts to position our company for a return to profitability and a realization of the inherent value that we believe exists in Galaxy's strong brand names and distribution relationships," said CEO Michael Broll, who took up the helm in July 2004.
Last month Galaxy announced the planned sale of its manufacturing and distribution assets for $8.7 million, and an agreement to outsource its operations in these areas to Schreiber Foods for at least the next five years.
Brolls said that this move is "key to restoring profitability", and that the company is so far pleased with the progress towards implementing this relationship.
But he added: "Our ultimate goal is, of course, to maximize shareholder value, and one of the alternatives that must be considered involves the possible sale of the company to a third party."
The first quarter 2005 results bore the brunt of the Schreiber deal in the form of a one-off, non-cash $7.9 million charge which the company said reflects the difference between carrying the cost of production equipment on the company's books and the amount that it will receive when the sale is completed.
Casein costs continued to plague the company, leading to a decrease in gross profit margin to 23 percent of sales in Q1, compared to 26 percent for the same period of last year. And a hiccough in supply of its products to Walmart stores, previously been channeled through a private label customer, contributed to a drop in sales from $11.2 to $9.9 million.
Although the picture is less than rosy, Broll put a brave face on the results, calling the quarter "quite unusual".
He said that the benefits of the Schreiber arrangement should start becoming apparent on the balance sheet for Q4 2006. The outsourcing deal should result in lower production costs afforded by outsourcing to Schreiber, since Galaxy's production facility had a larger capacity than was required and was underutilized, meaning that the cost of production was considerably higher.
Schreiber also has greater purchasing power with raw materials suppliers, which should help alleviate some of the pressure from casein. Galaxy plans to use some of the proceeds from the sale of its facility to pay off around $7.4 million of its outstanding debt.
Galaxy is clear to point out that, at this stage, neither a sale, nor any strategic alternative, is definite.
