Ralcorp Said to Have Taken Only a Month on ConAgra Deal
Ralcorp Holdings Inc. (RAH), the food maker that spent much of last year rebuffing ConAgra Foods Inc. (CAG), took only about a month to forge terms with its suitor this time around, said people familiar with the matter.
Typically a deal would take at least five or six months, said one of these people, who asked not to be named because the negotiations were private. ConAgra approached Ralcorp in late October, said the people, and announced the $5 billion takeover yesterday.
The new discussions began more than a year after Omaha, Nebraska-based ConAgra scrapped a previous offer for Ralcorp, when the latter’s board refused to negotiate following a six- month pursuit. The previous talks with St. Louis-based Ralcorp made it easier for ConAgra to move quickly on a transaction since it had already conducted some of its own due diligence, said the people.
Ralcorp also wanted to cement the deal ahead of releasing mixed fourth-quarter results, the people said. The company said yesterday that sales amounted to $1.07 billion, short of the $1.1 billion average estimate of analysts, according to data compiled by Bloomberg.
Matt Pudlowski, a spokesman for Ralcorp, said that while the company has stated that 2012 was a difficult year, he didn’t think the company rushed to complete a deal to distract from its latest results. He didn’t respond to a follow-up call seeking comment.
Ralcorp agreed to a deal partly because of increased pressure from top Ralcorp shareholder Corvex Management LP, the activist investing group run by Keith Meister, which had pushed the private-label food maker to pursue a combination, said two of the people. Meister bought into the company on Aug. 23 and first began talks with Ralcorp in mid-September, said a person familiar with the matter.
ConAgra and its advisers decided to restart talks after Ralcorp added Meister to the board in October without a fight, said one of these people. ConAgra, led by Chief Executive Officer Gary Rodkin, saw that as a sign Ralcorp would be more open to a deal, said this person.
Corvex partner Nicholas Graziano declined to comment. Teresa Paulsen, a spokeswoman for ConAgra, didn’t respond to an e-mail seeking comment.
ConAgra told Ralcorp days ago it wouldn’t go above $90 per share and was happy to see the price tick down from $74 a share in early November to about $70 on Nov. 26, this person said. The deal values Corvex’s Ralcorp stake at about $262.3 million, or almost $60 million more than the day before the transaction announcement, according to data compiled by Bloomberg.
Last year, the maker of store-brand sauces, pastas and other foods snubbed an offer of $94 a share from ConAgra, deciding instead to pursue a spinoff of the Post Holdings Inc. (POST) business, whose brands include the eponymous cereals. The division began trading on its own in February and closed at $34.72 yesterday in New York.
Since shareholders got one share in Post for every two Ralcorp shares they held, anyone still holding both would get a total value of $107.50 a share, said Sarah Donnelly, a portfolio manager with Gabelli & Co., whose funds and affiliates collectively own 2.3 percent of Ralcorp.
The deal also gives ConAgra a much larger presence in the private-label food business, which the company has been trying to grow, Donnelly said in a phone interview.
“It’s a good price for Ralcorp shareholders and a good deal for ConAgra,” Donnelly said.
Centerview Partners LLC and Bank of America Corp. provided financial advice to ConAgra, while Davis Polk & Wardwell LLP offered legal counsel. Barclays Plc and Goldman Sachs Group Inc. served as advisers to Ralcorp, with Wachtell Lipton Rosen & Katz giving legal advice.
Yesterday, Ralcorp reported fourth-quarter earnings, excluding some costs and gains, of 71 cents a share. Excluding acquisition-related amortization, adjusted earnings were 92 cents. Analysts on average projected profit of 87 cents, according to data compiled by Bloomberg. Gross margin, or the percentage of sales left after the cost of goods sold, shrank to 19.2 percent on an adjusted basis, compared with 20.9 percent a year earlier.
ConAgra advanced 4.7 percent to $29.63 yesterday in New York. Ralcorp surged 26 percent to $88.80.
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