3rd UPDATE: Ralcorp Rejects ConAgra's $4.9 Billion Buyout Offer
May 04 2011 - 3:31PM
Dow Jones News
Ralcorp Holdings Inc. (RAH) rejected a $4.9 billion buyout offer
from ConAgra Foods Inc. (CAG), shooting down an attempt by ConAgra
to become a bigger private-label powerhouse.
Ralcorp said its board unanimously rejected ConAgra's all-cash
offer of $86 a share, saying it wasn't in the best interest of
shareholders. It also adopted a shareholder rights plan, more
commonly referred to as a poison pill, to prevent someone from
buying the company without an adequate premium.
"We are confident that Ralcorp has a strategic plan and proven
management team that will continue to generate significant
shareholder value in the future," Ralcorp Chairman William Stiritz
said.
ConAgra says it remains interested in speaking with Ralcorp
about a potential deal.
"We continue to be very enthusiastic about the potential
combination of Ralcorp and ConAgra Foods," ConAgra spokeswoman
Teresa Paulsen said. "We are very interested in discussions with
Ralcorp, and we continue to believe this is a very good opportunity
for shareholders of both companies."
Ralcorp shares were recently at $87, up 4.4% on the day but down
from an earlier high of $90.20. ConAgra shares were up 1.7% at
$25.19 in recent trading.
ConAgra earlier Wednesday disclosed its offer for Ralcorp, the
owner of Post cereals and maker of private-label pasta, crackers,
jams and other items, sweetening a bid from an $82-a-share offer in
cash and stock made in March.
ConAgra's offer represents a 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 has refused to meet with ConAgra about the deal, and
there are some signs that the St. Louis-based company may be
digging in. Its second-quarter results released Sunday came in
above expectations, showing adept cost management in the face of
inflation. Sales of Post cereals also improved compared to prior
quarters.
Ralcorp also announced a $100 million cost-savings program to
boost profit over the next three years, which some analysts
speculated that disclosing the internal cost-savings program was an
attempt to extract a higher bid.
In Ralcorp, ConAgra is looking to cement a leading position in
the private-label category. The recession has sparked growth among
private-label goods, and retailers have become eager to hold on to
those gains when the economy improves, since private-label offers
attractive profits.
"Value is here to stay and private label is a big part of the
value equation for retailers and for consumers," Chief Executive
Gary Rodkin said on a conference call with analysts.
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. Retailers have also
devoted more attention to that segment, mindful of holding on to
cost-conscious consumers.
ConAgra will look to increase what would be a combined $4
billion private-label business alongside national brands like
Hebrew National hotdogs, Hunt's ketchup and Peter Pan peanut
butter. That can be a tough portfolio to manage, as growth of
private-label means less shelf space for branded items.
ConAgra says it already has experience managing that balance
through its business that includes products on both sides. ConAgra
makes private-label product for retailers including Wal-Mart Stores
Inc. (WMT), Kroger Co. (KR) and others.
"We have a pretty good understanding on how to manage that
because we do that today," Rodkin said in an interview.
It will also take on Ralcorp's Post cereals business in the
deal, which will pit it head-to-head with Kellogg Co. (K) and
General Mills Inc. (GIS) in the category.
The combined company would have a sales mix of about 50% retail
branded, 25% commercial-food service 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. It expects
the deal to be accretive to earnings in the first year.
-By Paul Ziobro, Dow Jones Newswires; 212-416-2194;
paul.ziobro@dowjones.com
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