Conagra Foods Takeover of Ralcorp Store Brands Largest Supplier of Private Label Packaged Products, TreeHouse takeover target nyse

            After one and a half years of trying to get a deal done, on Tuesday November 27 ConAgra Foods agreed to pay shareholders of Ralcorp US $4.95 billion cash for control of the company, that's 30% more than the market valued the company at the day before ($90.00 or 11 times ebitda vs $70 a share);

the news immediately pushed Ralcorp stock up 26%.  In addition, ConAgra will assume $1.89 billion in long term debt (not bad considering Ralcorp's debt had been 15% higher just three quarters ago).  It's a great deal considering Ralcorp Holdings stock had been down almost 20% since the start of the calendar year but still, Ralcorp has some regrets;  As recently as 2011 ConAgra offered $94 a share an offer Ralcorp rejected.  -> click for 2011 video: conagra sept 2011 $94 offer rejected qtrly profit -40% to 20c/sh 

Investor note - According to Janney Capital Markets, the deal makes $1.9 billion TreeHouse Foods Inc an acquisitions target.  TreeHouse makes store brand jams, pickles, salad dressings.

Also of note - Wonderbread and Twinkies, presently under liquidation were owned by Ralcorp until 1995 when Hostess Brands predecessor Interstate Bakeries acquired their parent company for $330 million. - Ralcorp owned Post Cereals from 2007 to summer of 2011.  During that period, about a quarter of Ralcorp's sales came from Post Food brands. - ConAgra was involved in the Trader Joe's peanut butter recall of 2012 (peter pan peanut butter).

Deal may lead to higher food prices

ConAgra Foods goes from being an important player in the private label food market to being the largest.  This means that when you buy Kroger, Albertsons, or even some Walmart-labeled, packaged food products you're probably buying something supplied by ConAgra.  Prior to the deal only some of ConAgra's products were sold under private labels (Walmart Great Value, Kroger, Albertsons, Food Lion) with the rest marketed as separate distinct brands (Chef Boyardee, Orville Redenbacher's, Pam, Parkay).  When the deal for Ralcorp closes in March 2013, ConAgra becomes a much bigger player in the private label market.  Even though the name ConAgra isn't on the packaging, many of the products you buy from your local supermarket will come from one of its facilities.  Having nearly cornered the private-label diversified food market, Conagra will have enough leverage to boost prices in a way that ConAgra’s previous inventory of brands couldn't;  Private label represents one-fifth of the total market for packaged foods in the United States.

For fiscal 2012 (period ended September) Ralcorp reported earnings of $73.4 million (over loss of $241m last year) on revenues of $4.322.2 billion (+14.1%).  Prior to Monday, Ralcorp (nyse:rah) stock price had been down -18.1% since the start of 2012 ($85.5 vs $70).

European Connection

Prior to 2001 Ralcorp was a much larger company that was a leader in pet food sales.  That all changed in December of 2001 when the company split and the pet food division Ralston Purina was sold to Swiss company Nestle in a $10 billion deal.  Also in 2001, Ralcorp divested its international animal feed business which was purchased by Cargill. 

Key Notes

  1. $90 a share is 11X ebitda
  2. This is the largest deal in that sector of the food industry in ten years
  3. Prior to the deal, ConAgra had a market cap of about $11.5 billion or 2.97X higher than Ralcorp's ($3.87 billion).
  4. Over the last two quarters Conagra profited $189.3 million (includes a loss of $60.1 million in the quarter ended May 27 - the only loss in five quarters) on revenues of $6.7255 billion.  In ConAgra's most recent quarter revenue is up +6.7%, profit up +167%.  Long term debt is $2.86 billion unchanged in five quarters.
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