May 26, 2015 / 9:54 PM / in 3 years

UPDATE 1-Hormel Foods to buy organic meat company Applegate

(Adds details, background, shares)

May 26 (Reuters) - Hormel Foods Corp said it would buy natural and organic meat processor Applegate Farms LLC for about $775 million to cater to an increasing demand for food free of antibiotics, hormones and artificial additives.

Shares of Hormel, the maker of Spam lunch meat, rose 3.3 percent in extended trading on Tuesday.

Major food companies are trying to shed artificial additives from their well-known brands to create healthier products.

Larger rival Tyson Foods Inc said in April it plans to end the use of human antibiotics in its chicken by 2017.

Last Friday, mass retailer Wal-Mart Stores Inc issued guidelines to its meat, seafood, dairy and egg suppliers to reduce the use of antibiotics in their products.

Applegate, whose sausages, bacon and other products are free of antibiotics and hormones, will operate as a standalone unit of Hormel’s refrigerated foods business, Hormel said on Tuesday.

Hormel said Applegate’s selling shareholders were its founder Stephen McDonnell and Swander Pace Capital.

McDonnell will serve as an adviser while Kerry Collins will continue as CEO for the “next several months,” Applegate said.

Bridgewater, New Jersey-based Applegate’s 2015 annual sales are expected to be about $340 million, Hormel said. It expects the transaction to add by about 7-8 cents per share to earnings in fiscal 2016.

Credit Suisse was Hormel’s financial adviser and Faegre Baker Daniels its legal counsel. Goldman Sachs & Co is financial advisor to Applegate and Ballard Spahr LLP and Fried Frank are its legal counsel.

Shares of Hormel closed at $56.61 on the New York Stock Exchange on Tuesday. (Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Don Sebastian)

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