By Saabira Chaudhuri
ConAgra Foods Inc. (CAG) has agreed to buy private-label
producer Ralcorp Holdings Inc. (RAH) in a deal that will create one
of the largest foodmakers in North America, valuing Ralcorp at
about $4.95 billion.
ConAgra will pay Ralcorp shareholders $90 a share in cash, a 28%
premium over Monday's closing price. Including the assumption of
debt, ConAgra said the deal is valued at about $6.8 billion.
Shares of Ralcorp jumped 27% to $88.93 in recent premarket
trading, while those of ConAgra were inactive from a Monday close
of $28.29.
The companies noted that combined company will have sales of
about $18 billion annually and more than 36,000 employees. It will
also position ConAgra Foods as the largest private label packaged
food business in North America, with combined private label sales
of about $4.5 billion. The deal is expected to close by the end of
March.
"Adding Ralcorp provides us with a much larger presence in the
attractive and growing private label segment and accelerates our
Recipe for Growth strategy," ConAgra Chief Executive Gary Rodkin
said. "The transaction will allow us to apply our scale and
combined operational expertise to this important growth area, and
will strengthen our position as one of the leading food companies
in North America."
ConAgra's Recipe for Growth strategy, launched 18 months ago,
includes expansion in the private label segment, growth in its core
business, and expansion internationally.
ConAgra noted that the purchase adds to its existing private
label business of about $950 million. The company said, according
to industry analysts, private label now represents 18% of sales in
the packaged food market in the U.S. and has consistently
demonstrated growth in excess of the overall food market over time.
The foodmaker also said that Ralcorp's portfolio complements its
own, with very little overlap. Ralcorp's leading private label
offerings include cereal, pasta, crackers, jellies and jams, syrups
and frozen waffles.
ConAgra has had its sights set on Ralcorp for some time now, but
failed in its bid to buy the foodmaker for $5.2 billion in
September of last year. However recently, Ralcorp has slimmed down,
having spun off its cereal business as Post Holdings Inc. (POST) in
February, and then in September agreeing to sell its remaining 20%
stake in the cereal maker to settle about $200 million of
outstanding debt.
Tuesday's deal also comes about three months after The Wall
Street Journal reported that a hedge fund headed by a former
lieutenant of billionaire activist Carl Icahn was pushing Ralcorp
to sell itself, fueling speculation about whether ConAgra would
again express interest in buying the private-label food company
after being rebuffed last year.
Due to the timing of the deal's close, ConAgra said it expects
the deal to have only a "modest benefit" on next fiscal year's
results. The company said it expects to achieve about $225 million
of cost synergies on an annual basis by the fourth full fiscal year
after the deal closes.
The company said it currently expects to maintain its annual
per-share dividend, but will "significantly reduce its share
buyback activities for a period of time."
ConAgra has been beefing up its portfolio with acquisitions over
the past year as it tries to find growth in the struggling
packaged-food space. ConAgra, in seeking to deploy its cash, has
been looking for deals in categories where it already sells goods
in the private-label space and internationally. In July, the
company agreed to buy Unilever's frozen-meals businesses in North
America, which sells items under the Bertolli and P.F. Chang's
brands, for $265 million.
Meanwhile, Ralcorp's bottom-line results had been skewed by
impairment, merger costs and other charges in recent quarters.
However its revenue has strengthened for more than a year, helped
by gains from acquisitions and improved sales volume.
Tuesday, Ralcorp reported that its fourth-quarter loss narrowed
sharply as sales climbed--helped by acquisition--and the foodmaker
recorded a small profit from discontinued operations, versus a
significant loss in this category a year ago.
Write to Saabira Chaudhuri at saabira.chaudhuri@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires