Embattled Freedom Foods (ASX:FNP) sells business segment

The Freedom Foods Group (ASX: FNP) share price won't be going anywhere today, despite the company offloading its cereal and snacks business.

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The Freedom Foods Group Ltd (ASX: FNP) share price won't be going anywhere today, despite the company announcing it's offloading its cereal and snacks business. Freedom Foods shares have remained suspended from trading on the ASX since 25 June this year.

The Freedom Food share price last closed at $3.01.

What did Freedom Foods announce?

Freedom Foods has today announced the sale of its cereal and snacks operations to The Arnott's Group.

According to Freedom Foods, the divestment follows an ongoing program to create a leaner and simpler business model. The company is seeking to cut its product range in order to improve profitability, while focusing on growth.

The decision follows a previous announcement on 30 November, in which Freedom Foods advised it was reviewing its cereal and snacks segment. Although the company had considered a 'fix and retain' option, it came to the conclusion the best strategic option was to offload the business.

Terms of the sale

Under the agreement, Freedom Foods will sell certain assets and liabilities of the cereal and snacks business for $20 million. The cash payment is expected to provide a net amount of $11 million after transaction costs and equipment leases.

The sale will include manufacturing facilities in Leeton and Darlington Point in New South Wales, and Dandenong in Victoria. The transfer of brands comprises Freedom Foods, Messy Monkeys, Heritage Mill, Arnold's Farm, and Barley Plus.

The transaction is expected to be completed on 1 March 2021 pending customary conditions.

Furthermore, the sale of the Freedom Foods cereals brand will see the company change its corporate name. Management said more information will be provided to shareholders on this subject at a later stage.

What did management say?

Freedom Foods Group interim CEO Mr Michael Perich spoke about the sale. He said:

We believe the Cereal and Snacks business will thrive under an owner such as The Arnott's Group, which is committed to investing in the business and employees to ensure a sustainable and successful future.

This decision is consistent with the new executive team's strategy of simplifying both our business structure and product range to ensure we are maximising growth opportunities in Dairy and Nutritionals and Plant-based Beverages.

Adding to his comments, Arnott's Group CEO Mr George Zoghbi went on to say:

This purchase of manufacturing sites and leading consumer brands from Freedom Foods Group will accelerate our strategy of entering new product categories and unlock innovation to benefit customers and consumers.

This will add three Australian manufacturing sites to our already well-invested domestic supply chain. Once the purchase is finalised, our domestic manufacturing network will extend across eastern Australia from Virginia in Queensland, Huntingwood, Leeton and Darlington Point in NSW to Shepparton and Dandenong in Victoria and Marleston in South Australia.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Freedom Foods Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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