Ralcorp to Spin Off Post Foods After Failing to Find Buyer

Ralcorp Holdings Inc. (RAH), the maker of Raisin Bran cereals and private-label food brands, plans to spin off Post Foods after failing to sell the unit to rival foodmakers or private-equity firms.

Co-Chief Executive Officer Kevin Hunt will be Ralcorp’s CEO after the separation, which should be completed in about four to six months, St. Louis-based Ralcorp said today in a statement. Ralcorp said its board has formed a committee to search for a CEO for Post.

Ralcorp had explored selling Post to fend off a $4.9 billion bid from ConAgra Foods Inc. (CAG), people familiar with the matter said in May. Ralcorp received little interest in the division, which generated about one-fourth of its sales last year, the people said.

“Ralcorp did not see much interest in Post during ConAgra’s campaign to acquire them,” Mark Baum, a managing partner at consumer-product consultant Marcat Group in Reston, Virginia, said in an interview. “This makes sense if Ralcorp’s strategy is to stay close to the core private-label business.”

Post Foods, the third-largest maker of breakfast cereal in the U.S., will issue as much as $1.2 billion of debt, with Ralcorp getting about $1 billion of the proceeds. Ralcorp, which generated about $3 billion last year from selling nuts, sauces and frozen foods under retailers’ own brands, said it will use the funds to repay debt, make acquisitions and buy back shares.

“Our proposed acquisition of all of Ralcorp continues to be in the best interests of their shareholders,” Omaha, Nebraska-based ConAgra said today in a statement.

Forecasts Cut

Separately, Ralcorp said third-quarter profit excluding some items may be as much as $1.18 per share, trailing the $1.38 average of 11 analysts’ estimates compiled by Bloomberg.

The company also cut its full-year profit projection to $5.20 to $5.35 a share from a May forecast of as much as $5.55, because of surging raw-ingredient costs.

Ralcorp fell $4.62, or 5.3 percent, to $82 at 5:55 p.m. in trading after the regular close of the New York Stock Exchange. The shares had gained 33 percent this year through the close of regular trading today.

Ralcorp said it will continue seeking to acquire private- label food manufacturers after completing 24 deals since 1997. Post plans to expand beyond cereal into snacks, the company said.

Ralcorp had rejected ConAgra’s most recent offer May 4, its second snub of the Omaha, Nebraska-based foodmaker. ConAgra first contacted Ralcorp in February and Ralcorp began exploring a sale of Post soon after, people familiar with the matter said. At the time Ralcorp shares traded around $64.

Ralcorp Acquisitions

Ralcorp began in 1994 through the spinoff of Ralston Purina’s cereals and baby foods businesses. About a quarter of Ralcorp’s sales come from Post, bought from Kraft Foods Inc. (KFT) for $2.7 billion in 2008. Ralcorp added to its private-label pasta business with the $1.2 billion purchase of the American Italian Pasta Co. last year.

Total sales of store-brand products increased 1.8 percent to $88.5 billion in 2010, according to the Private Label Manufacturers Association, a New York-based industry group. Sales of branded goods fell 1.1 percent to $419.2 billion. From 2006 to 2010, store-brand items increased their share of units sold in U.S. retailers from 20.2 percent to 21.8 percent.

Credit Suisse Group AG is acting as financial adviser to Ralcorp, and Wachtell, Lipton, Rosen & Katz and Bryan Cave LLP are serving as legal counsel.

To contact the reporter on this story: Matthew Boyle in New York at mboyle20@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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