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November 2, 2015

TreeHouse to buy ConAgra’s private-label arm

TreeHouse Foods, the US own-label supplier, is to acquire ConAgra Foods' private-label businesses in a US$2.7bn deal.

TreeHouse Foods, the US own-label supplier, is to acquire ConAgra Foods’ private-label businesses in a US$2.7bn deal.

The firm announced today (2 November) it has signed a definitive agreement to buy Ralcorp, ConAgra Foods’ private brands operations. Annual sales of the combined entity will be nearly $7 billion. The transaction is anticipated in the first quarter of 2016.

Speculation TreeHouse was in late-stage talks to acquire the division hit headlines last week.

The transaction will see ConAgra sell will what it called “the vast majority” of its private label operations, including a network of 32 manufacturing facilities in the US, Canada and Italy. ConAgra will keep some private-label operations that it said have “a strong connection” to its existing consumer foods business – including assets in canned pasta, cooking spray and peanut butter. It will also retain frozen pasta products made by Italian unit Gelit, as well as the brand equity, trademark and business portfolios for HK Anderson pretzels and Kangaroo pita chips. ConAgra said the results were “not material” and would be classified with its consumer foods division.

TreeHouse said the acquisition would “meaningfully expand TreeHouse’s presence in private-label dry and refrigerated grocery”.

“Since our founding ten years ago, our strategy has been to drive shareholder value by consolidating supply of private label brands. We offer our customers value without compromise through economies of scale, quality products and superior customer service,” said Sam Reed, chairman and CEO of TreeHouse. “The union of TreeHouse and ConAgra’s private brands business establishes an industry leader in customer brands and custom products with significant scale, scope and skill and enables us to extend our reach in the grocery store by over ten shelf stable and refrigerated food categories. Importantly, the combination will also strengthen our ability to support our customers’ efforts to build their corporate brands and offer consumers the best combination of choice and value.”

Ralcorp, which was acquired by ConAgra in 2012, has been hit by competition and integration issues, which have weighed heavy on the group’s overall performance.

In ConAgra’s most recent full year results announcement, it recorded a 290.1% drop in operating profit of its private label arm, pushing overall operating profit down 82.2% year-on-year to US$181.5m. Following this, newly-appointed CEO Sean Connolly moved to announce the company was exiting private label. 

Connolly said: “Today’s announcement follows a robust sale process involving more than 35 potential buyers, including both strategic buyers and financial sponsors. We are confident that the private-label business will be in good hands with TreeHouse Foods, and better-positioned to reach its full potential as part of a focused private-label company.”

TreeHouse expects to incur approximately $100 million in costs associated with transaction fees and issuance costs. It expects the transaction to be dilutive by $0.20-$0.35 in adjusted earnings per share in year one, to contribute $0.55-$0.70 in year two and to be accretive by $1.50-$1.65 in year three. 

The company also previewed its third-quarter results and pre-announced sales of $799 million, which compares to sales of $796 million in the third quarter of 2014.  TreeHouse expects to report earnings per fully diluted share of $0.64-$0.65 compared to $0.47 per fully diluted share reported for the third quarter of last year. 

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