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ConAgra Foods becomes largest foodmaker

11/27/2012 @ 7:00am

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.

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