Blog: ConAgra turns hostile in Ralcorp bid
Katy Askew | 4 May 2011
ConAgra's bid to acquire Ralcorp Holdings took a new turn today (3 May) when, after a failed attempt to open a dialogue with the private label manufacturer's board, the Chef Boyardee and Healthy Choice maker decided to pitch its offer directly to Ralcorp shareholders.
ConAgra has offered US$86 per share for the company and, although this represents quite a premium on Ralcorp's share price before takeover talk pushed it up last week, shares in the group already surpassed this value in morning trade today, rising to $88.05 on the NYSE by noon.
Ralcorp shares have been driven up by speculative investors who are betting that ConAgra will be forced to up its offer. And, according to ConAgra itself, the compelling strategic rationale behind the move could justify an improved price.
Outlining its motivations for the deal, ConAgra said that the combination would result in the formation of the third largest US food group, a powerhouse with iconic brands and - significantly - an extremely strong presence in the fast-growing private label sector.
According to ConAgra, over the past five years private label has grown from 16.4% of sales in the supermarket channel to 18.9%. Perhaps, then, the attempted acquisition of Ralcorp can be viewed as an indication of the strategic emphasis that ConAgra is placing on growing this side of the business: ConAgra already has a decent showing as a private label manufacturer and it seems that the company is backing sustained growth of the private label sector in the US.
Another reason why investors are willing to wager that the hammer will fall on Ralcorp for a higher price is speculation that a financial investor could step in with a counter bid.
Financial buyers could be attracted to the group given its scale, leverage and the potential to improve free cash-flow generation, analysts have suggested. With Apollo Global Management already linked to a possible move, this eventuality does not seem entirely far-fetched. Indeed, Morningstar analyst Erin Lash yesterday suggested that a realistic price for deal realisation would be in the region of $90 per share.
With all these factors at play, we can certainly expect the negotiations between Ralcorp and ConAgra to make headlines for some time to come.
Danone completed its US$12.5bn acquisition of WhiteWave Foods this week. The move will roughly double Danone's presence in North America, where WhiteWave is a top four dairy player. ...
Premier Foods plc revealed today (28 March) it has secured a deal with its pension scheme trustees that will see the UK food maker reduce its pension burden....
Hain Celestial, under the scrutiny of the investment community in recent months and facing some challenges in its domestic market, has announced another shuffling of its management pack....
- Danone's Q1: four things to learn
- Who will buy Danone's Stonyfield business?
- Column: Why snacking is the new meal
- Nestle Q1 update: four things to learn
- Interview: KP Snacks on growth strategy
- Tyson shops Sara Lee bakery, Kettle and Van's
- Nestle to cut UK confectionery jobs
- PepsiCo affirms full-year target as Q1 hits mark
- Tyson to buy burger-to-entree firm AdvancePierre
- TreeHouse Foods sells soup, baby food units