updated 3/16/2006 12:07:22 PM ET 2006-03-16T17:07:22

Del Monte Foods Co., one of the nation’s largest distributors of canned fruit and vegetables, said Thursday it is adding more pet products to its business, agreeing to acquire Milk-Bone dog treats and other brands from Kraft Foods Inc. for about $580 million.

The deal comes two weeks after Del Monte announced plans to buy catfood maker Meow Mix Holdings for $705 million and is part of Del Monte’s larger plan to focus on having strong brands.

“Milk-Bone, with its strong brand position in the fast-growing and dynamic pet snacks category, will significantly strengthen our overall competitiveness in the pet business,” Chairman and Chief Executive Richard G. Wolford said in a statement. “It is another key step forward for Del Monte as we deliver against our overall strategic commitments.”

Del Monte’s acquisition costs will be somewhat offset by about $125 million in related tax benefits. The company, which plans to fund the deal with added debt, expects the transaction to have a dilutive affect on its fiscal 2007 earnings when taking into account integration costs, but be “meaningfully” accretive to fiscal 2008 earnings.

Milk-Bone is a leader in dog snacks, generating revenue of about $180 million in 2005.

Northfield, Ill.-based Kraft said selling the Milk-Bone brand will allow the company to better focus on its core products. The sale includes Kraft’s Milk-Bone manufacturing plant in Buffalo, N.Y., and the Sherburne Pet Food Testing Center in Sherburne, N.Y. About 230 Kraft employees, including a business team in East Hanover, N.J., will join Del Monte.

Kraft said it will take an impairment charge on the deal of 4 cents per share in the first quarter and incur added tax costs of 3 cents per share, for a total 2006 impact of 7 cents per share. Ongoing dilution is expected to be 2 cents per share.

The transaction requires regulatory approval and will close shortly after all regulatory approvals have been received, Kraft said.

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