The financial details of the deal announced Aug. 25 were not disclosed, but to land the deal Heartland took on as a partner investment firm Centerbridge Partners, which manages $25 billion in assets. In exchange for its help, Centerbridge will become a shareholder of Heartland once the deal official closes, which is expected later this year.
Thanks to the partnership, Heartland will add to its diverse portfolio of sweeteners and brands a household name that dominates the low-calorie sweetener market and raked in $300 million in annual sales while part of the Johnson & Johnson subsidiary.
It also will expand its Indianapolis manufacturing plant, distribution center and corporate office by 100 jobs, according to the announcement. This is in addition to the 160 jobs it plans to add by 2017 as part of renovations to its 130,000 square-foot manufacturing plant in Indianapolis, which will include new production lines, filing machines, and packaging and blending equipment.
A statement from Heartland welcoming "a talented team of professionals" to its organization suggests Splenda employees will retain their jobs, although that could change with time.
Johnson & Johnson, which was rumored to be seeking a buyer for quite some time, said it wanted to sell the sweetener so that it could focus on its healthcare related businesses.
Heartland will face challenges
While the deal brings significant opportunity to Heartland, it also brings challenges – all of which likely are familiar to Heartland given it already operates in the sucralose space. Nonetheless, the sweetener's long term financial success could be hindered by increased competition from less expensive sucralose makers in China.
New sucralose competitors have flooded the market in recent years, causing prices to drop to the point where some major players are suffering. Specifically, Tate & Lyle had to consolidate its sucralose production in Alabama and streamline its business recently because of competition.
This latest deal could be another blow to Tate & Lyle, which for years has made sucralose for McNeil Nutritionals to sell as Splenda. Given that Heartland is revamping its manufacturing facilities and already makes the ingredient, it is unclear if Tate & Lyle will continue production for the new owners of the brand.
Safety concerns could threaten sucralose sales
Another challenge Heartland must face is the ongoing debate in the U.S. about the safety of sucralose that could harm the ingredient’s reputation and long term finances if public opinion tips against the low-calorie sweetener.
The Center for Science in the Public Interest changed its rating for sucralose from “safe” to “caution” in recent years and food activists are gathering steam in their efforts to dissuade consumers from artificial ingredients. J&J has defended the safety of sucralose.
At the same time, the sweetener could benefit from the ongoing demonization of sugar and high fructose corn syrup as many consumers view it as a healthier alternative.
Indeed, the ingredient could see significant uptick if the recent launch of Diet Pepsi succeeds. Pepsi announced in April it would reformulate its diet product with sucralose instead of aspartame, which also is under attack by food activists. Other manufacturers of sweetened products likely are waiting and watching to see consumers' reaction before potentially reformulating with the ingredient.