ConAgra Takeover of Ralcorp Still Likely Despite Rejected Bid, Analysts Say

August 16, 2011
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Despite Ralcorp’s rejection of ConAgra’s $94-dollar-a-share bid last week, analysts forecast a ConAgra takeover of Ralcorp in the near future.  


“We believe that ConAgra’s latest offer significantly increases the likelihood of the deal before the end of the year,” says Amit Sharma, chartered financial analyst at the Toronto, Canada-based BMO Financial Group.


“We estimate a fair acquisition price in the range of $94 to $104, reflecting our analysis of past strategic and non-strategic mergers and acquisitions transactions in the food and beverage universe and our sum-of-the-parts analysis of Ralcorp’s branded cereal and core private label businesses,” he explains in a report issued Monday.


A higher bid will come shortly but it is unclear whether it will be for the entire company or just the private label portion of Ralcorp.


“Recent stock-price behavior may have created a short-term trading opportunity for Ralcorp shares. Based on our sum-of-the parts analysis, we think that ConAgra may choose to either raise the bid for the whole company into the $95 to $100 realm or hold off until after the spin-off to bid for just the private label piece,” predicts Alexia Howard, analyst at the New York-based investment research company Sanford C. Bernstein and Co., llc in her report. She’s referring to Ralcorp’s planned spinoff to shareholders of its Post Foods branded cereals unit.


“Although we wouldn't say a deal is as certain as it was in the Kraft-Cadbury situation, because Ralcorp isn't quite as attractive a prize, we still believe that [ConAgra] Chief Executive Officer Gary Rodkin is an enthusiastic buyer. We do not believe that he would be so naïve as to have twice approached ConAgra, the second time with a public letter, without expecting to have to come back to the table with a sweetened bid. As such, it is highly plausible that the commentary about ConAgra not wishing to raise its offer is simply yet another leaf out of the hostile bid playbook,” she explains.


This is the third time that Ralcorp has rejected a bid from ConAgra Foods. The bidding started in March when the ConAgra offered to buy the company for $82 a share. After the first rejection, the company came back two months later and offered $86 a share in cash. Shortly after ConAgra hired a proxy solicitor but has not made another move to take over the company until now.



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