Arnott’s bites into Freedom Foods

Freedom Foods is selling its health cereal and snacks business to Arnott’s.

Freedom Foods is selling its health cereal and snacks business to Arnott’s.

The battered Freedom Foods, whose shares have been suspended since June, is selling off its health cereal and snacks business to Arnott’s.

The company has ­shocked investors with a near $600m hole in its accounts and is now facing a shareholder class action as it tries to secure a capital raising.

Freedom Foods will seek to change its name as it distances itself from a recent trading and financial mess that has seen its chief executive and chief financial officer quit in quick succession after hundreds of millions of dollars of impairments drenched the accounts in red ink.

As part of the restructure and rebirth the struggling diversified food manufacturer and food brand owner has announced on Thursday the sale of its cereal and snacks operations to The Arnott’s Group. The sale was flagged by The Australian’s DataRoom column.

Freedom Foods announced last month, after it triggered almost $600m in writedowns and impairments, that it was reviewing all strategic options for the cereal and snacks business — the market-leading producer of allergen-free and healthy breakfast cereals and snacks.

The food manufacturer has had a tough 2020, even without COVID-19.

In mid June its CFO quit, the CEO followed a day later, and then investors were confronted with an investigation into the company’s accounts and operations which unearthed out-of-date stock and other inventory issues.

The company later unveiled $590m in writedowns and restatement of accounts for fiscal 2020 as well as previous years.

The company is being sued for $US16m by Blue Diamond — a key supplier of Freedom’s Almond Breeze milk products — for breach of contract in the US.

Freedom Foods is now in the midst of a $280m recapitalisation as it negotiates with US firm Oaktree Capital Management. Major shareholder, the Perich family, is looking to rescue the business and inject new capital. Freedom Foods has now reached agreement with Arnott’s for the sale of a basket of assets and liabilities of the cereal and snacks business for $20m in cash.

Net cash proceeds are estimated at $11m after deducting costs associated with the transaction and associated equipment leases.

The sale includes the cereal and snacks manufacturing facilities in Leeton and Darlington Point in NSW and in Dandenong in Victoria, as well as all brands associated with the business, including Freedom Foods, Messy Monkeys, Heritage Mill and Arnold’s Farm.

It does not include the Crankt Protein brand.

The majority of cereal and snacks employees will transfer to the new owners, but there are likely to be some redundancies.

Arnott’s was carved off from US giant Campbell Soup Company last year in a $3.2bn deal led by private equity firm KKR, which now owns a portfolio of iconic Australian biscuits like Tim Tams and Mint Slices as well as the local licence to the Campbell range of soups and cooking stocks.

Arnott’s chief executive ­George Zoghbi said the business was excited about the opportunity to acquire new capabilities in portable snacks and allergen-free products, including gluten-free foods and muesli bars.

“This purchase of manufacturing sites and leading consumer brands from Freedom Foods Group will accelerate our strategy of entering new product categories,” Mr Zoghbi said.

Following the sale of the Freedom Foods cereals brand, Freedom Foods said it change its corporate name.

Shares in Freedom Foods last traded in June at $3.01.