Source: St. Louis Post-Dispatch
 
Aurora Foods Inc. of Maryland Heights, which makes Duncan Hines cake mixes, will merge with Pinnacle Foods Corp., which sells Vlasic pickles, as part of Aurora's plan to file for bankruptcy to cut debt.
 
A spokesman for Aurora said Tuesday that a decision has yet to be reached about the fate of Aurora's corporate headquarters or its approximately 200 employees in the St. Louis area.
 
Pinnacle is based in Cherry Hill, N.J., and the new company will be headed by C. Dean Metropoulos, Pinnacle's chairman and chief executive. Dale Morrison, Aurora's interim chairman and chief executive, will step down after the deal is complete.
 
The complicated deal actually revolved around two investment companies. The first, J.W. Childs Equity Partners, has been working on a restructuring plan to lower Aurora's debt.
 
As part of the plan, Aurora will file for bankruptcy, and, when it emerges, J.W. Childs will invest $200 million in return for a 66.5 percent of the company.
 
The second investment company, J.P. Morgan Partners LLC, is seeking to acquire Pinnacle in a deal worth $485 million.
 
Once those deals are complete, J.P. Morgan and J.W. Childs have agreed to merge the two companies. The two companies will contribute $83.8 million to the combined company, Aurora said. The pair will own 49.3 percent of the merged company.
 
Metropoulos will contribute $1.25 million and own 8.8 percent of the merged company. Metropoulos, a longtime investor in food companies, said he will try to increase sales by spending on marketing for brands including Log Cabin syrup and Mrs. Paul's frozen seafood.
 
Aurora, which has had $596.3 million in losses since 1999, said in July that it planned a Chapter 11 filing, in which it would be protected from creditors, to cut its debt. It has yet to file for Chapter 11.
 
"We have been trying to put Pinnacle and Aurora together for a year and a half," said Metropoulos, who will head the combined company. "They're great old brands that have been beaten up for a long time and not managed well."
 
Holders of Aurora notes due in 2007 and 2008 will exchange their debt for new shares of the combined company, giving them a 42 percent stake. J.P. Morgan Partners and J.W. Childs Equity Partners will get a 49 percent stake. Senior loans will be paid in full in cash.
 
Shareholders won't receive any cash or new shares under the plan. In very heavy trading Tuesday of 8.1 million shares, Aurora shares fell 6.6 cents to 2.9 cents. They've lost 96.3 percent of their value this year. The shares traded at more than $21 in June 1998.
 
Aurora, which also makes Celeste pizzas, was hurt by an accounting scandal that led to a 33-month prison term for Ian Wilson, its former chairman.
 
Wilson admitted that he and three former colleagues overstated Aurora's earnings as well as the company's net income and current assets by more than $43 million.
 
Saddled with debt and unable to trim costs quickly enough, the company had a net loss that swelled to $483.1 million in 2002 from a loss of $17.6 million the year before.
 
Aurora, which has about 1,600 workers, last year closed a bagel plant in West Seneca, N.Y., and fired 204 workers to cut costs. In April, it fired 25 percent of its corporate staff.
 
The company has more than $1.04 billion of bank and bond debt outstanding, including $400 million of bond debt scheduled to come due in 2007-2008, according to Bloomberg News data.
 
Aurora missed an $8.8 million bond payment due July 1 and said it was in talks with bank lenders and bondholders about its bankruptcy plan.
 
Wilson, Aurora's former chairman, was sentenced in November for manipulating the company's financial statements. In 2001, he pleaded guilty to charges that he conspired to hide higher-than-expected promotional expenses. The ex-Aurora officials wanted to meet analysts' earnings estimates and to obtain bank loans, prosecutors said.
 
Aurora is being advised by Miller, Buckfire, Lewis, Ying & Co., an investment-banking firm in New York that specializes in debt restructurings.
 
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Aurora Foods timeline
 
February 2000 - Ian Wilson, chairman and chief executive, resigns amid questions about Aurora's accounting practices. Later, he pleads guilty of fraud and is sent to prison.
 
April -- Aurora chooses James Smith, a former ConAgra Foods official, as chief executive. The company restates earnings from the previous two years.
 
May -- Aurora takes a $20 million charge to revamp its troubled trade-promotion programs.
 
August 2002 -- Aurora forces Smith to resign. Dale Morrison, who formerly ran Campbell's Soup, becomes interim chairman and chief executive . To raise cash, the company will sell off assets.
 
May 2003 -- Aurora says a potential buyer for its frozen-food business backs out of the deal.
 
July -- The company announces a plan to restructure. J.W. Childs Associates LP will buy a majority stake.
 
Tuesday -- Aurora says it and Pinnacle Foods Corp. will be combined as part of its plan to file for bankruptcy protection and reduce debt.
 
CORRECTION-DATE: October 16, 2003
 
CORRECTION:
 
A deal involving the merger of Aurora Foods Inc. of Maryland Heights and Pinnacle Foods Corp. of Cherry Hill, N.J., revolves around three investment companies - J.W. Childs Equity Partners, J.P. Morgan Partners LLC and C. Dean Metropoulos & Co. The third company was omitted from a story Wednesday in the Business section. Also, J.W. Childs' earlier plan to invest $200 million in Aurora isn't part of the deal; the story gave incorrect information.