ConAgra Said to Have Bid at Least $80 a Share for Ralcorp

ConAgra Said to Have Offered $80 a Share for Ralcorp
ConAgra Foods Inc. corporate headquarters are pictured in Omaha, Nebraska, U.S. Photographer: Eric Francis/Bloomberg

ConAgra Foods Inc., the maker of Hunt’s Ketchup and Healthy Choice frozen meals, offered to buy cereal maker Ralcorp Holdings Inc. for at least $80 a share in March, said a person with knowledge of the matter.

The cash-and-stock bid, submitted in writing, was in the low 80s, said the person, who declined to be identified because the situation is private. Ralcorp said yesterday that its board turned down an unsolicited offer, without identifying the suitor. The company also said it isn’t currently in sale talks.

Ralcorp, whose stock traded in the mid-60s for most of March, rose as high as $84.61 in New York today. ConAgra’s offer would value Ralcorp, formed in a spinoff from Ralston Purina Co. almost 20 years ago, at more than $4.3 billion. Apollo Global Management LLC also is seeking an investment in Ralcorp and planned to meet with its managers, a person familiar with the talks said last week.

“I am not surprised by ConAgra’s interest, but the option that might make most strategic sense would be an approach by private equity,” said James Amoroso, a food industry consultant based in Walchwil, Switzerland. A private-equity firm may decide to sell the Post cereal business and focus on private labels, he said. History suggests “that companies that mix branded and private label business model do not do well.”

Store Brands

Ralcorp generated more than $4 billion in sales last year from selling store-brand items such as peanut butter, cookies and condiments, as well as the Post brand of cereal. Matt Pudlowski, a company spokesman, and Teresa Paulsen, a ConAgra spokeswoman, declined to comment. CNBC reported on the offer price earlier today.

A ConAgra purchase of Ralcorp would make sense because of ConAgra’s familiarity with store-brand industry trends, Christopher Growe, an analyst at Stifel Nicolaus, said in a note to clients today.

“ConAgra could well still be lurking,” said the St. Louis-based analyst, who recommends holding ConAgra’s shares. A bid also may signal “a higher appetite for risk on the part of senior management.”

ConAgra generates more than $1 billion in sales from store-brand products, according to Andrew Lazar, an analyst at Barclays Capital, and adding Ralcorp would push that business to almost $4 billion.

“ConAgra’s private-label business has long appeared to be a logical fit for Ralcorp,” Lazar said in a note to clients today. “We see this potential transaction positively from both a strategic and financial standpoint.” The New York-based analyst has a “neutral” rating on ConAgra’s shares.

Share Performance

Ralcorp, led by Co-Chief Executive Officers Kevin Hunt and David Skarie, rose $6.80, or 8.7 percent, to $84.60 at 4:04 p.m. in New York Stock Exchange composite trading. Omaha, Nebraska-based ConAgra gained 23 cents to $24.68.

There were almost 1,800 food-company takeovers in the five years through 2010, according to data compiled by Bloomberg. Acquirers have paid an average of 8.8 times earnings before interest, taxes, depreciation and amortization, the data show. Ralcorp had Ebitda of $628.60 million in the year ended September 2010.

This year New York-based Apollo, led by Leon Black, bid for Sara Lee Corp., before being rebuffed by the Downers Grove, Illinois-based maker of Ball Park hot dogs. Apollo has been working with former consumer executive C. Dean Metropoulos to find investment opportunities in the industry.

ConAgra, known for its Chef Boyardee pasta and Healthy Choice frozen meals, has done a single acquisition in the past 12 months, the June purchase of American Pie LLC. Buying Ralcorp would give ConAgra Chief Executive Officer Gary Rodkin the biggest maker of store-brand pasta and cereal in the U.S.


Ralcorp added to its private-label pasta business with the $1.2 billion purchase of the American Italian Pasta Co. last year. The business’s branded cereals include Raisin Bran.

Ralcorp, like rivals, faces rising prices for ingredients such as milk and wheat. The company gets about a quarter of its annual sales from its branded cereal unit, which sells products including Post Shredded Wheat. Post Foods traces its roots to the 1895 creation of cereal beverage Postum by C.W. Post. The company’s biggest unit is its sauces and spreads business, which makes products including Hoody’s Branded Snack Nuts and had $1.5 billion in revenue last year.

The company also reported results for the second quarter ended March 31 yesterday. Net income climbed 78 percent to $83.3 million, or $1.50 a share, on sales of $1.17 billion, Ralcorp said.

Acquisitions such as the American Italian Pasta purchase helped bolster sales, according to the company. Excluding items such as integration costs, earnings were $1.43 a share, compared with the $1.25 average of estimates compiled by Bloomberg.

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