Under the terms of the deal, Ralcorp shareholders will received $90 per share, a 28% premium over the share price on Nov. 26, for a total of about $5 billion. The total value of the deal is about $6.8 billion, including the assumption of debt.
ConAgra had first bid on Ralcorp more than a year ago, a deal that the Ralcorp board walked away from. That deal went through several stages, with the last offer at $94 a share. Pressure from activist investor Keith Meister reportedly figured into yesterday's deal. Meister, the founder of Corvex Management, Ralcorp's largest shareholder, demanded in August that Ralcorp either sell itself, buy another company or change its strategy after disappointing results following the board’s rejection of ConAgra’s earlier offer.
The deal is as good fit from a product lineup standpoint. Ralcorp makes private label cereal, pasta, crackers, jams and jellies, syrups and frozen waffles. ConAgra does not have a large presence in these categories.
The transaction creates one of the largest packed food companies in North America. Annual sales will be approximately $18 billion and the combined company has more that 36,000 employees.
“Ralcorp is already the largest private label food company in the U.S. and is well positioned for future growth. The acquisition of Ralcorp is a logical and exciting step for ConAgra Foods. Adding Ralcorp provides us with a much larger presence in the attractive and growing private label segment,” said ConAgra CEO Gary Rodkin.
$4.5 billion in private label sales
ConAgra already had about $950 million in revenue from private label products. With the addition of Ralcorp, that total will rise to about $4.5 billion. The acquisition fits with ConAgra’s overall strategy to grow its private label presence. According to industry analysts, the private label segment now represents 18% of the sales in the packaged foods segment in the U.S. and has consistently grown faster than the overall market.
“Consumer dynamics have changed since the recession and we expect growth in private label food to continue to outpace growth in branded food,” Rodkin said.
ConAgra said it expects the transaction to provide a modest boost the company’s 2013 bottom line. It expects to achieve approximately $225 million of cost synergies on an annual basis by the fourth full fiscal year after closing.