UPDATE:ConAgra Makes $4.9 Billion Bid For Ralcorp

ConAgra Foods Inc. (CAG) publicly disclosed a $4.9 billion offer to buy Ralcorp Holdings Inc. (RAH), sweetening a previously rejected offer, in an attempt by ConAgra to create the third-largest U.S. packaged-food company by sales.

The deal would also expand ConAgra's presence in the private-label food business and, with Ralcorp's Post cereals business, pit it head-to-head with Kellogg Co. (K) and General Mills Inc. (GIS) in the category.

ConAgra is offering $86 a share for Ralcorp, a 3.2% premium to Ralcorp's closing price on Tuesday, though 25% higher than the one-month average before news reports said Ralcorp had been approached. The deal also includes the assumption of about $2.5 billion in debt.

Ralcorp shares were up 8% premarket to $90, indicating expectations for a higher bid. ConAgra shares were unchanged at $24.75.

Ralcorp didn't immediately return a call for comment. Late Sunday, the company confirmed that in March it received and rejected a takeover offer. ConAgra on Wednesday said its initial offer in March was $82 a share.

There are some signs that Ralcorp may be digging in, analysts say. Ralcorp on Sunday also released second-quarter results above expectations, showing adept cost management in the face of high cost inflation. Sales for its Post cereals business also showed some improvement from prior quarters.

Ralcorp also announced a $100 million cost-savings program to boost profit over the next three years.

Some analysts speculated that disclosing the internal cost-savings program was an attempt to extract a higher bid.

ConAgra is eying combining its approximately $850 million private-label business with Ralcorp's to create a powerhouse with approximately $4 billion in combined annual private label sales. Sales of private-label products have grown from 16.4% of sales in the supermarket channel to 18.9% in the U.S. during the last five years, helped in part by the recession. Companies active in the space will try to hold on to that market share even as the economy improves.

The combined company would have a sales mix of about 50% retail branded, 25% commercial-foodservice and 25% private label, according to ConAgra.

ConAgra expects the combined operations will result in annual cost savings of about $250 million a year by the third year after the deal closes, mostly from supply-chain efficiencies.

Ralcorp has been on its own acquisition spree in recent years, buying pasta maker American Italian Pasta Co. last year and Post cereal brands, which include Fruity Pebbles and Honey Bunches of Oats, in 2008.

-By Paul Ziobro, Dow Jones Newswires; 212-416-2194; paul.ziobro@dowjones.com

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