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ConAgra Acquires Ralcorp

Zacks Equity Research

ConAgra Foods Inc. (CAG), a leading food company, successfully acquired Ralcorp Holdings Inc., a branded food company for approximately $6.8 billion, including debt or $90.00 per share in cash.

The acquisition, agreed upon on Nov 26, 2012, received regulatory approvals and Ralcorp shareholders’ sanction and came to a close on Jan 29, 2013. The acquisition was agreed upon on Nov 26, 2012, for $90.0 per share in cash of Ralcorp’s common shares. The price per share implies a 28.2% premium on Ralcorp’s closing share price on November 26.

Subsequent to the acquisition, ConAgra becomes the market leader in packaged foods industry with roughly $18.0 billion in sales annually. Ralcorp posted annual sales of $4.3 billion in fiscal 2012 (ended Sep 2012), compared with ConAgra’s $13.3 billion during its fiscal year 2012 (ended May 2012). The company’s employee strength will increase to over 36,000 workers.

Ralcorp offers a variety of branded foods like cereal, pasta, crackers, jellies and jams, syrups, frozen waffles, combined with meals, entrées, condiments, sides, snacks, and desserts. This reinforces management’s belief that the total private label business would be worth around $4.5 billion annually. The synergistic benefits are likely to be great as ConAgra lacks a significant presence in the markets where Ralcorp primarily operates.

As previously announced, ConAgra is expected to derive cost synergies of about $225 million per year from the acquisition. The acquisition is sponsored through ConAgra’s existing cash, credit facilities as well as new borrowings.

Based in North America, ConAgra is a leader in the branded and value-added foods industry. The stock currently holds a Zacks Rank #2 (Buy). Other stocks worth a look in the industry are B&G Foods Inc. (BGS), Flowers Foods Inc. (FLO) and Ingredion Inc. (INGR); each bearing a Zacks Rank #1 (Strong Buy).

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