Last month, Ralcorp Holdings announced it would “aggressively” look to make acquisitions to expand its private-label operations, which are set to stand alone after a spin off of branded cereals business Post. The deal to buy Sara Lee‘s refrigerated dough unit is part of that strategy. However, there is still uncertainty over the future of the US company, with speculation over the intentions of ConAgra Foods, which made a bid for the whole business in May.

Ralcorp Holdings’ acquisition of Sara Lee’s refrigerated dough business in North America has added to the uncertainty over ConAgra Foods’ interest in the private-label and cereals manufacturer.

ConAgra first lodged its interest in Ralcorp in May when it made a US$4.9bn takeover bid, which was promptly turned down.

Since then, Ralcorp has announced plans to spin off its branded cereal business Post Foods from its private-label operations.

In theory, the spin off could make Ralcorp easier for ConAgra to buy. When Ralcorp announced plans to separate Post from its private-label operations, ConAgra said it still believed its offer for the whole business “continues to be in the best interests of their shareholders”.

However, Ralcorp said it wanted to “aggressively” pursue acquisitions in own label, which suggested the company was confident in its ability to deliver returns for shareholders and was not interested in a sale.

Yesterday (9 August) came the first evidence of Ralcorp’s M&A ambitions in the US private-label sector when it announced it had struck a deal to buy the Sara Lee unit for US$545m. Ralcorp’s new acquisition manufactures a range of private-label products including biscuits, crescent rolls, pizza and pie crusts and toaster pastries, which are sold to food and mass retailers.

Analysts said the deal made strategic sense for Ralcorp but they were also quick to discuss what impact of the move could have on ConAgra’s interest in the company.

Sanford Bernstein analyst Alexia Howard said Ralcorp’s move for the Sara Lee division makes it a “bit more challenging” for ConAgra to take over the whole business.

Howard claimed the acquisition could be seen as an indication of Ralcorp’s “desire to go it alone, increase the size of the company and thereby make it harder for ConAgra to finance”.

However, Howard said ConAgra could be more inclined to now purchase Ralcorp’s private-label business alone “albeit at a higher price”.

Elsewhere, BB&T Capital Markets analyst Heather Jones concurred with Howard. The Sara Lee deal would not make a renewed ConAgra bid for Ralcorp “unfeasible” but it could “make such action less likely”, Jones said.

Perhaps expectedly, Ralcorp’s senior executives made no mention of ConAgra when they discussed the deal and their company’s third-quarter results with analysts.

Ralcorp co-CEO and co-president Kevin Hunt said the company “could not be more excited” about the Sara Lee deal and claimed the acquisition would allow his company to “immediately become a private-brand leader in the refrigerated dough category”.

Speaking about the strength of the private-label channel, Hunt said that own-label products “continue to trend positively as consumers capture the 33% average savings from private brand products”. Nearly $89bn of private-label products were sold in 2010, Hunt said, and the category “continues to grow more quickly than branded foods”.

“We believe that the factors shaping this trend, retailer consolidation, improved product and packaging quality and higher margins for retailers and branded products will continue to make private brand foods a very attractive segment,” said Hunt.

Further private-label acquisitions may be on the horizon for Ralcorp. “The fragmented nature of the industry also affords us significant acquisition opportunities. As a leader in private-brand food in North America, we are excited about our future,” said Hunt.

However, there is the view among analysts that Ralcorp does remain a takeover target.

Analysts at Stifel Nicolaus said shares in ConAgra were affected by Ralcorp’s move for Sara Lee’s refrigerated dough business. The deal “weighed” on ConAgra’s stock, they said, as investors “face the emerging reality” that a deal with Ralcorp may not happen as the company “continues to undertake value-enhancing actions” like the Sara Lee acquisition and the spin off of Post.

Stifel Nicolaus analysts Chris Growe, Dan Stephen and Andrew Carter said they were “somewhat perplexed” over ConAgra’s pursuit of Ralcorp, which has so far amounted to two approaches, one in March and one in May.

“While we understand ConAgra does not want to bid against itself in this endeavour, ultimately the lapse of time has allowed Ralcorp to take actions that in our view make ConAgra’s current offer of $86 less attractive than it was originally,” they wrote in a note to clients.

Now, they argue, ConAgra will have to up its offer to $90-a-share, which the analysts say would be “quite reasonable” to the US food giant. Including the potential synergies, the deal could boost ConAgra’s earnings per share by $0.70.

As well as its third-quarter results and the Sara Lee deal, Ralcorp also used the conference call with analysts to discuss its spin off of Post.

A key part of Ralcorp’s strategy for its private-label operations – acquisitions – is clear but the company outlined some of the plans for Post.

Co-CEO and president Dave Skarie, who plans to leave the company at the end of the year but is leading the separation of Post, said innovation will drive growth for the cereal maker. “While Post Foods‘ baseline business still has challenges, we feel the key to success in the category is innovation, which ultimately drives consumers to our products,” he said.

Ralcorp has identified over $200m in “additional revenue opportunities” in ready-to-eat cereal and adjacent categories.

“We have developed a detailed and multi-year new product plan prioritised by size and risk. We believe this disciplined and multi-year approach to new product development is a first for Post. 2011 was just the beginning and we are excited about our future new product pipeline,” Skarie said.

He added that the US ready-to-eat cereal category is beginning to show signs of growth, with the most recent four-week measured channel data showing growth for the first time since 2009.

“Higher net pricing and further improved innovation are primary drivers for the change in our view, and we are optimistic that the trend can continue,” Skarie said.

There is, however, uncertainty over whether Post, which is the number three in a US cereals category behind Kellogg and General Mills, can be revitalised.

In the three months to the end of June, Ralcorp’s sales volumes climbed 28%, in part due to acquisitions made last year. However, branded cereal volumes fell 14%. Profits from branded cereal dipped from $54.1m last year to $54m.

“Tough competitive dynamics in the domestic cereal aisle are hindering the firm’s cereal volume,” Morningstar analyst Erin Lash told just-food. “Branded firms like General Mills and Kellogg are prioritising investments behind product innovation that resonates with consumers, which could further pressure Ralcorp’s cereal sales.”

For all Ralcorp’s optimism about the prospects for its private-label operations and for Post, there is a cloud of uncertainty over the company.

Will ConAgra return with another bid? Will it just be interested in Ralcorp’s private-label division? Will it wait until after the spin off? Can Ralcorp revitalise the Post business?

Lash believes ConAgra is more interested in Ralcorp’s private-label operations. “Our thinking is ConAgra’s interest in Ralcorp primarily surrounds the private-label segment, rather than the Post brand,” she said.

Over at Stifel Nicolaus, analysts believe another bid from ConAgra for the whole business is likely. “We believe that ConAgra still desires to acquire all of Ralcorp in an effort to improve its longer-term top-line growth profile and reap the benefits of immediate and significant EPS accretion.”

The speculation over the future of Ralcorp started in the spring and could continue for some time yet.