ConAgra Plans to Divest Private Brands Amid Jana Pressure

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ConAgra Foods Inc. Chief Executive Officer Sean Connolly, after only three months on the job, is undoing the company’s $6.7 billion acquisition of private-label food maker Ralcorp amid pressure from an activist investor.

The business, which makes products under supermarkets’ names, is being sold because turning it around represents a “suboptimal use” of ConAgra’s resources, Connolly said in a statement Tuesday. The company will release operating details of its plans and long-term financial expectations at an investor event later this year, he said.

ConAgra has struggled with slumping sales and profit following the 2013 acquisition of Ralcorp, hurt by management missteps and an overreliance products in struggling categories. Jana Partners, a hedge fund founded by Barry Rosenstein, disclosed a 7.2 percent stake in ConAgra this month and threatened to nominate three directors.

“This will give them more time and energy to focus on their better-performing businesses,” said Michael Halen, an analyst for Bloomberg Intelligence. Still, shareholders will see some value destruction because they won’t get what they paid for it in 2013, Halen said.

Given the division’s lackluster performance, it’s a likely target for private-equity buyers rather than another food company, Halen said.

ConAgra rose 0.7 percent to close at $43.72 in New York. The Omaha, Nebraska-based company has gained 21 percent this year, with much of the gain coming after Jana’s stake was disclosed.

Ralcorp Writedown

Jana has said it started amassing the stake after ConAgra wrote down the Ralcorp deal by $1.3 billion in March. Before the Ralcorp acquisition, ConAgra was focused on packaged foods with well-known brand names. Its lineup includes Chef Boyardee, Healthy Choice brands, Hunt’s ketchup, Swiss Miss cocoa and Orville Redenbacher’s popcorn.

The deal was a bet that Ralcorp’s faster-growing private-label business would be a good fit for the company. Instead, ConAgra struggled to the combine the two businesses, cutting the sales force too much and reducing prices, which ate into margins, Halen said. The private-label division also sold a lot of cereal and pasta, which are declining categories because consumers are shifting to other options, he said.

The fourth-quarter results ConAgra released Tuesday showed the private-label operations continued to be a drag on the company’s results. The unit posted a $24.7 million operating loss as sales fell 1 percent to $1.02 billion in the quarter through May 31.

Fourth-Quarter Results

Companywide, net income was $209.2 million, or 48 cents a share, compared with a loss of $324.2 million, or 77 cents, a year earlier. Excluding some items, profit was 59 cents a share, matching analysts’ estimates. Sales rose 3.7 percent to $4.1 billion, trailing the $4.13 billion average projection.

Former Chief Executive Officer Gary Rodkin, who orchestrated the Ralcorp deal, announced last year that he would step down and was replaced by Connolly, who officially took the reins in April. He previously led Hillshire Brands and abandoned an unpopular deal to buy Pinnacle Foods during his tenure there.

The plan to sell the private-label business was most likely driven by new management, led by Connolly, rather than pressure from Jana, Halen said. Jana disclosed its activist stake on June 19, less than two weeks ago.

“This is probably something that has been talked about for a long time,” Halen said. “When a new management team comes in, everything is on the table.”