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Meet The New 900-Pound Gorilla

January 17, 2013
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So what is the face of the largest private label food manufacturer in North America?

In a couple of months, it will be the one with ConAgra written on its label. ConAgra announced in November that it reached a deal to buy Ralcorp for about $7 billion, including nearly $5 billion in cash and the assumption of debt.

The deal is expected to close in March and would create a $4.5 billion annual private label food manufacturer, working side-by-side with the national brand business that makes up nearly half of ConAgra’s annual sales.

“It’s so compelling because of the growth we see in store brands,” ConAgra President of Sales Doug Knudsen told PLBuyer. “We know how important store brands are with our customers. It’s very important to us, and acquisitions we’ve made – National Pretzel has a significant private label business – we really like and we like the growth prospects of it.”

The deal came as a surprise and shock to many after Ralcorp three times rejected bids from ConAgra in 2011. But the acquisition of Ralcorp stock by Corvex Management LP – a private-equity group that immediately agitated for an acquisition or sale by Ralcorp – appeared to have changed the landscape. And executives from both companies said the discussions on the deal went smoothly.

“The agreement process was a friendly, collaborative one,” ConAgra Foods CEO Gary Rodkin said on a conference call 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.”

The move also came after Ralcorp initiated a restructuring plan this summer that aligned its food groups into one center-store division. It was then, Wisner Marketing Group President Jim Wisner said, that he began to think that something was in the works.

“The way it was announced, sort of a fait accompli, this had to be going on for a couple months,” he said. “If you go back and look at it, ConAgra paid less than they said they wanted to at first, they got it without Post – which they didn’t want, I think – and (Ralcorp) recouped some of the money from Post.

“The reorganization was intriguing. It looked like, do you really want to do that? They had a couple divisions that were apples and oranges, so it was curious why they’d move in that direction. I suspect it was because they were working on this deal.”

A future with two of the major private label food manufacturers joining forces shows the continued strength of the industry, said Willard Bishop Managing Partner Jim Hertal.

“I think the real news in this is beyond the transaction, one of the premier branded companies, ConAgra, is known more for the branded side, but now looks like they will consummate a large deal and be more invested in private brands,” he said. “I think this is really a recognition that private label is here to stay.”

Lash said that the emphasis toward private label could help ConAgra’s branded work as well.

“We’ve long believed that ConAgra’s second- and third-tier brands lack equity and pricing to their peers, and we think that with this, ConAgra will be able to benefit as the consumer looks for lower-priced products,” she said. “We also believe it will enhance relations with retailers who are looking for those options.”

And ConAgra’s Knudsen said the deal would help his sales team be able to take a broad portfolio out to their customers, and Ralcorp’s customers, featuring both national brand and private label options.

“We do think it does give us opportunities because of the importance of customers’ brands to the business,” he said. “It makes us somewhat unique in this industry, and we think we can use and leverage that as a strong connection point with our customer.”

And that, said Newmarketbuilders President Carol Speckerman, appears to be the right course for the future of the industry.

“I think most companies think of private brands as an either-or proposition, but they should coexist,” she said. “Private brands and national brand portfolios ideally belong together.”

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