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Update: ConAgra Purchase Process 'Friendly'

November 27, 2012
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More than 18 months after Ralcorp first turned down ConAgra’s bid to buy the company, the private label supplier powerhouses announced Tuesday that Ralcorp had agreed to be bought by ConAgra in a deal valued at $6.8 billion.

ConAgra made three bids to buy Ralcorp in 2011, starting at $82 a share for the company and rising to $94 a share late last year before withdrawing the bid. This deal will pay $90 a share in cash for Ralcorp shareholders, a 28.2 percent premium to the stock. The assumption of debt pushes the overall value near $7 billion.

ConAgra Foods CEO Gary Rodkin said the two companies found common ground to complete the transaction. In the process they are creating the largest private label food manufacturer in North America.

“The agreement process was a friendly, collaborative one,” Rodkin said on a conference call Tuesday announcing the deal. “We’ve enjoyed getting to know Ralcorp’s senior management team. We have great respect for them. … This makes us very comfortable we can deliver on the promise of this transaction.”

Ralcorp CEO Kevin Hunt said the process brought the two sides closer together, and was a win for creating shareholder value for his company.

“This is truly an exciting day for Ralcorp, our shareholders, our employees, and our valued customers,” Hunt said on the conference call. “The two teams (have been) getting to know each other and gaining an understanding of the commonalities we have. We think this combination will be a great fit.”

Ralcorp had been pressured to create shareholder value after Corvex Management LP claimed a 5 percent stake in the company this summer and immediately suggested a sale, merger, or acquisition for Ralcorp to unlock value.

“This transaction is the culmination of our efforts to create shareholder value,” Hunt said. “We believe that now is the right time to join with ConAgra Foods.”

The culmination of the deal is a stark change from September 2011, when Ralcorp rejected the third and final ConAgra bid at $94 a share. At that time, Ralcorp Chairman William Stiritz said the company was prepared to move forward on its own.

“Our private label business has been enormously successful and is well positioned for the future,” he said in a prepared statement in September 2011. “The Ralcorp team, under Kevin Hunt's leadership following Dave Skarie's retirement at year end, will continue to aggressively pursue and execute the same strategies that have created an outstanding record of value creation for Ralcorp shareholders.”

Stiritz cited the upcoming spinoff of Post cereal brands as creating future value for shareholders, but although that spinoff was completed in the first quarter of 2012, accounting problems with the deal forced Ralcorp to restate the value of the spinoff by $54 million.

In September, Ralcorp announced it was restructuring its company to consolidate the company’s Cereal, Pasta, and Snacks, Sauces and Spreads divisions into one company across 20 food categories.

ConAgra said the companies would have a combined $4.5 billion in annual private label sales, creating $225 million in annual synergy savings by 2017. Rodkin said the companies were compatible in the industry.

“There is minimal overlap between the branded and private label offerings which we expect will help us present a balanced portfolio to our customers ,” he said.

Rodkin said ConAgra would benefit from the knowledge that Ralcorp had in private label, as well as its reach into fast-growing channels, including its foodservice business, and its ability to produce quality private label products.

“This tiering of good-better-best … is really something to think about as we go forward,” he said. “… Our eyes are set really on looking for that good-better-best, and we’ve got a v disciplined process on deciding the categories we’re going to participate in.”

Rodkin said that Ralcorp’s strength with customers such as McDonald’s, Costco, and Trader Joe’s were among the examples of areas where ConAgra could find success or grow current business.

“It clearly is a big win for us from a channel standpoint,” he said.

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