Euromonitor, Bernstein, weigh in on Conagra’s $10.9bn deal to acquire Pinnacle Foods

By Elaine Watson

- Last updated on GMT

Conagra Brands CEO: 'We are well-positioned to accelerate the next wave of change'
Conagra Brands CEO: 'We are well-positioned to accelerate the next wave of change'
The combination of Conagra Brands and Pinnacle could create a new giant in the US packaged food industry with a particularly strong presence in the resurgent frozen food aisle, although there are limits to how much frozen categories can rebound, say analysts at Euromonitor and Bernstein.

Speaking after Chicago-based Conagra Brands (Marie Callender's, Reddi-wip, Hunt's, Healthy Choice, Slim Jim, Alexia, Blake's, Angie's BOOMCHICKAPOP), announced a $10.9bn deal (including debt) to acquire New Jersey-based Pinnacle Foods (Birds Eye, Duncan Hines, Earth Balance, EVOL, Gardein, Glutino, Hungry-Man, Log Cabin, Udi's,  Vlasic, Wish-Bone), Euromonitor research analyst Dewey Warner said:

There has been a ton of attention lately on the renaissance happening in the frozen food aisle, and understandably so. Most of this has to do with frozen food companies finally coming around to some self-reflection and altering the products they have relied on for so long in order to better meet consumers where they currently are (as opposed to consumer priorities suddenly shifting back toward processed frozen foods).

“Pinnacle has a huge presence, primarily through its Birds Eye brand, in frozen vegetables, which has increasingly included innovative and on-trend items such as riced vegetables and cauliflower items with bold flavors – all items that are helping to fuel growth. This has been further helped along by a migration for many consumers away from heavy consumption of fresh vegetables and toward leaning on frozen varieties, due to convenience and concerns about waste of fresh items.”

That said, the trend toward fresh eating is “still powerful and growing,” ​said Warner.

“While some of these frozen companies have experienced a resurgence in sales recently, I do think there are limits to how much these frozen categories can rebound. Revamping products to better align with consumer tastes and priorities is absolutely a path to growth in the frozen aisle, but it is not a surefire means to it for all frozen companies; I believe opportunities for growth are ultimately limited in this space.”

Bernstein: 'Conagra seems to have paid a fair price'

In a note issued this morning, Bernstein analysts said the deal "makes Conagra one of the most leveraged companies within our US coverage,​" but said the price was "fair​."

They added: "The acquisition was widely anticipated and Conagra seems to have paid a fair price, especially in light of the elevated multiples paid by packaged food companies recently.

"Overall, we believe the acquisition makes strategic sense, although remain cautious on the growth prospects for the frozen category.The multiple seems somewhat more reasonable than others we have seen of late, although Pinnacle's sales growth in measured channels was only 1% over the past year.

"While the frozen category has been supported by product innovation led by Conagra and Pinnacle recently, it is unclear if there is enough demand to support the growth of frozen foods over the long term. While we don't expect major antitrust issues here, the merger agreement includes a $300m provision for divestments, which may mean something needs to be given up. And if the closing process drags on for several months, it begs the question of whether Pinnacle will be able to maintain its current sales momentum given the uncertainty hanging over employees as they await the change of ownership."

Combining ConAgra and Pinnacle would really create a new giant up toward the top of the US packaged food industry, edging closer to names like Kraft Heinz and Nestle in share, and particularly a new one in the frozen food aisle, with household name brands like Birds Eye and Healthy Choice, both of which are experiencing strong recent growth and a bit of a resurgence, all housed under one roof.

“Ultimately, this merger could create a really powerful duo and a new giant in the food industry with a leading and growing role to play in the health and wellness segment.”

Dewey Warner, research analyst, Euromonitor International

Conagra Brands CEO: ‘We are well-positioned to accelerate the next wave of change’

Under the deal, which is expected to close by the end of 2018, Conagra Brands will acquire all outstanding shares of Pinnacle Foods in a cash and stock transaction valued at approximately $10.9bn, including Pinnacle Foods' outstanding net debt.

Based on both companies' latest fiscal year results, pro forma net sales would have been approximately $11bn, said Conagra CEO Sean Connolly, who has been steadily re-engineering Conagra since taking the helm three years ago, spinning off the Lamb Weston business, exiting private brands and non-core businesses such as Spicetec and JM Swank, and acquiring brands in faster-growing segments such as Blake’s, Frontera, Thanasi Foods, Angie’s BOOMCHICKAPOP and Sandwich Bros.

 “After three years of transformative work to create a pure-play, branded food company, we are well-positioned to accelerate the next wave of change.

"The addition of Pinnacle Foods' leading brands in the attractive frozen foods and snacks categories will create a tremendous opportunity for us to further leverage our proven innovation approach, brand-building capabilities, and deep customer relationships.”

Source: Conagra Brands FY 2018 results presentation
Source: Conagra Brands FY 2018 results presentation

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1 comment

Very high multiple

Posted by JOSEPH SABBAGH Sax Maritime,

I could understand someone from outside the sector paying this multiple to enter the sector but I can not understand why CA would pay this price. I hope it works out for them.

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