WALMARTING THE FOOD CHAIN - Foodopoly: The Battle Over the Future of Food and Farming in America - page 44

advice, and even perform ordinary business functions (sort of like the big-business version of the reader's
bank accounts). Banks do provide mundane financial services, and many banks are eager to advertise these
services to companies that generate billions of dollars in sales. Food companies rely on more extensive
banking services than consumers, but the effect is the same. Food and agribusiness companies use com-
mercial banks to perform treasury management functions that include handling both purchases and billing,
cash oversight, and investments.
Companies that rely on food ingredients from overseas (think coffee, cocoa, or spices) may need banks
to help deal with currency or interest-rate volatility between different markets. Wells Fargo, Harris Bank,
Commerce Bank, and others have tailored commercial banking products and services for agribusiness and
food companies. The top twenty largest food-processing companies all had more than $5 billion in sales
in 2010, so the cash-management fees for the banks handling these accounts can be a significant source of
profit.
The past decade's wave of mergers, acquisitions, and corporate takeovers would not have been possible
without the Wall Street firms that put the deals together and financed them. Investment banks not only
advise the companies involved in structuring the deals, they provide the necessary access to capital. Wall
Street banks and investment firms can either lend companies cash to finance a takeover or help issue cor-
porate bonds to fund the deals. During 2010 and 2011 the food, beverage, and tobacco industries issued
more than $60 billion in new corporate bonds to raise revenue, either for takeover bids or to expand their
businesses. 34 Financial firms also help private companies make initial public offerings (IPO) so they could
become publicly traded firms and attempt to raise money on the stock market.
And the more mergers and takeovers there are, the more the banks, private equity funds, and law firms
earn in fees. Even during the economic downturn, merger-and-acquisition activity remained brisk. The
Food Institute reported nearly one thousand merger deals in the food and beverage sectors between 2009
and 2011, and the annual number of deals reached prerecession levels by 2010. 35
Big food companies and financial firms are looking at struggling food, beverage, and agribusiness com-
panies as potential targets as the economy starts to improve. According to Neil Masterson, the head of
global investment banking at Thomson Reuters, “While we are clearly still in a post-credit crunch envir-
onment, M&A [mergers and acquisitions] and private equity firms are returning to robust deal activity, and
investment banking fees are on the rise.” 36
These big-dollar mergers involve numerous financial service firms and banks. For instance, in Kraft's
$19 billion hostile takeover of the British multinational Cadbury, Kraft was advised by Lazard, the global
investment bank, along with Centerview Partners, a new investment bank. Citigroup and Deutsche Bank
also served as advisers to Kraft and provided financing: Kraft had to borrow $11.5 billion to finance the
deal. 37 Cadbury's financial advisers were Goldman Sachs, UBS, and Morgan Stanley. Morgan Stanley and
Citigroup were among the banks that received the largest bailouts during the recent financial crisis.
Another merger that investment banks attempted to broker was one between Diamond Foods, the large
snack-nuts company, and Procter & Gamble's Pringles division. Accounting fraud was discovered at Dia-
mond during the negotiations that was designed to make the company's balance sheet look healthier than it
was. Since then, Diamond's new management has hired Dean Bradley Osborne, a firm formed by former
senior investment bankers from Morgan Stanley, to help facilitate restructuring its debt with lenders. This
deal required Diamond to stop paying shareholder dividends, to pay a loan penalty of about $1.5 million,
and to pay higher interest rates, which could cost an estimated $3 million more on the remaining unpaid
loans. Among its lenders are: Bank of America (the recipient of a large bailout), Barclays, BBVA Com-
pass, BB&T, HSBC, J.P. Morgan, and Siemens Financial Services.
In the wake of the failed merger, Kellogg's announced that it would buy Pringles. The deal was negoti-
ated quickly and was scheduled to close in June 2012. Kellogg's was advised by Barclays Capital and the