--ConAgra agrees to buy Ralcorp for $90 a share, or $4.95
billion, after a 20 month courtship
--Deal would create the second-largest U.S. packaged food
company by sales with $18 billion
--Ralcorp shares up 26% premarket
(Adds details, including background on ConAgra's pursuit of
Ralcorp.)
By Paul Ziobro
ConAgra Foods Inc. (CAG) is poised to become the second-largest
U.S. packaged food company by sales after agreeing to buy
private-label food maker Ralcorp Holdings Inc. (RAH) for about
$4.95 billion, concluding a courtship that began more than 20
months ago.
ConAgra is buying Ralcorp for $90 a share in cash, a 28% premium
to Monday's closing price. The deal includes the assumption of
Ralcorp's debt, bring the total value of the deal to about $6.8
billion.
The combination of ConAgra and Ralcorp will create a company
with annual sales of $18 billion, trailing Kraft Foods Group Inc.
(KRFT) at $19 billion, and finally gives ConAgra the big exposure
to the private-label food industry that it craved when it first
approached Ralcorp in March 2011.
"Adding Ralcorp provides us with a much larger presence in the
attractive and growing private label segment," ConAgra Chief
Executive Gary Rodkin said.
The sale price also provides some vindication to Ralcorp, which
was criticized by shareholders for not coming to the bargaining
table when ConAgra first started making overtures. Instead of
engaging in talks, Ralcorp instead pursued plans to spin off its
Post foods unit into Post Holdings Inc. (POST) in February.
ConAgra's final offer last year reached $94 a share for the
combined Ralcorp. When accounting for the stock split that occurred
before the Post spin-off, the combined value of Ralcorp's
acquisition agreement Tuesday and the Post spinoff comes to $107.05
a share.
Pressure on Ralcorp intensified more recently when Corvex
Management LP--a hedge fund headed by Keith Meister, a protege of
famed activist investor Carl Icahn--in August publicly called for
Ralcorp to consider selling itself. Mr. Meister, who declined to
comment Tuesday, ultimately secured a seat on Ralcorp's board, a
strong sign that Ralcorp was willing to consider the proposals.
Shares of Ralcorp jumped 26% to $88.80 in recent premarket
trading, while those of ConAgra rose 4.3% to $29.50.
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 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.
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 expects to maintain its annual per-share
dividend, but will "significantly reduce its share buyback
activities for a period of time."
Ralcorp will be by far the largest acquisition in a recent spree
by ConAgra, which has been on the hunt 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.
--Saabira Chaudhuri contributed to this article.
Write to Paul Ziobro at paul.ziobro@dowjones.com
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