On the 27th of November, ConAgra Foods Inc. informed that it reached a deal to acquire Ralcorp Holdings Inc. for $5 billion after almost two-year-long takeover talks. Once the takeover is finalized, ConAgra Foods Inc. will be the largest private-label food producer in the United States.
Acquisition of Ralcorp
The acquisition deal is valued at roughly $6.8 billion, when debt is included. According to a statement, ConAgra Foods Inc. decided to pay as much as $90 per share to Ralcorp Holdings Inc.’s shareholders; it is a premium of almost a 30 percent to closing price on the 26th of November.
The acquisition of Ralcorp Holdings Inc. is to be funded with cash as well as loans granted by Bank of America Merrill Lynch. The takeover deal is said to be closed by the end of March.
The sale price of $90 per share is beneath the last year’s ConAgra Foods Inc.’s offer of $94 per share which was rejected by the board of Ralcorp Holdings Inc. The board was widely criticized by the company’s shareholders for not starting negotiations when ConAgra Foods Inc. made the initial offer.
ConAgra Foods Inc. decided to make the new offer after Keith Meister started serving on the board of Ralcorp Holdings Inc. as the company and its advisors were convinced that the private-label food producer would be more open to the acquisition deal.
Ralcorp Holdings Inc. also agreed to the acquisition as it had been facing growing pressure from its leading shareholder Corvex Management LP, which is the investing group headed by Keith Meister himself.
Increasing appetite for private-label food
It is worth underlying that as much as 98 percent of American families use private-label products. Consumption of private-label products totaled approximately 29 percent in the year ended February 2012, up from roughly 20 percent a decade ago.
Research firms indicate that private-label brands are gaining popularity as American consumers are struggling amid weak economic conditions. In addition, retailers decide to turn to private-label products due to their attractive profit margins. Gary Rodkin, chief executive officer at ConAgra Foods Inc., underlines that private-label products make up almost20 percent of the packaged food market. Even though consumption of private-label products has decreased to about 28 percent since February, the market saw an increase in certain categories including snacks.
ConAgra CEO Gary Rodkin is strongly convinced that the US food industry will continue to move toward private-label sales, similarly to other developed countries. Therefore the acquisition of Ralcorp Holdings Inc. seems to be a capital go as it will quadruple the size of ConAgra Foods Inc. in the private-label part of the US food industry.
In addition, the acquisition of Ralcorp Holdings Inc. will not only make ConAgra Foods Inc. the second-largest US packed-food company by sales, just behind Kraft Foods Group Inc., but also will expand the company’s exposure to faster-growing retailers with private-label products. According to data, the acquisition of acquisition of Ralcorp Holdings Inc. will establish a company with about $18 billion in sales, compared to Kraft Foods Group Inc. with $19 billion. Certainly Kraft Foods Group Inc. will feel the overwhelming sense of ConAgra’s presence.