US food maker Ralcorp Holdings has said it will “aggressively” look for acquisitions to add to its core own-label business in the wake of the planned spin off of branded cereals arm Post Foods.
Ralcorp plans to use the proceeds from the Post spin off to add to its own-label operations, which makes products including pasta, crackers and jam for US retailers.
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As part of the spin off, Post, which Ralcorp expects to list on the New York Stock Exchange, will issue up to US$1.2bn in debt.
Ralcorp will receive net cash proceeds of around $1bn from the split, which the company said it expects to complete in “four to six months”. The company said it would use the money to lower debt, buy back shares and “aggressively pursue private-brand acquisitions”.
The announcement of the plan to spin off Post comes two months after Ralcorp turned down a bid for its whole business from ConAgra Foods.
A report from Bloomberg said today (15 July) that Ralcorp had looked into selling Post as part of its strategy to withstand the ConAgra takeover bid. However, anonymous sources told Bloomberg that Ralcorp had received little interest in the division.
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By GlobalDataIn its statement to announce the spin off, Ralcorp chairman William Stiritz, who will become Post’s chairman, said: “The board has been carefully evaluating tax-free separation alternatives for some time. We firmly believe the separation of Post Foods from Ralcorp by way of a tax-free spin-off will unlock significant value for our shareholders. As independent companies, both Ralcorp and Post Foods will be better positioned to focus on strategies specific to their particular businesses, thereby improving the opportunities to deliver increasing shareholder value.”
In reaction to Ralcorp’s plans, ConAgra said: “We have seen the announcement from Ralcorp and we believe our proposed acquisition of all of Ralcorp continues to be in the best interests of their shareholders.”
Ralcorp, which acquired Post from Kraft Foods in 2008, has seen its branded cereals business have a challenging few months. In the year to 30 September, branded cereal sales fell 8%, which pushed down profits from the division by 12%.
In the first six months of the current financial year, profits from branded cereals rose 2% but sales fell 6% on the back of a 10% slide in volumes.
Post plans to continue to grow Honey Bunches of Oats, which Ralcorp said was the third-largest cereal brand in the US. Ralcorp said Post would also look to increase its presence among Hispanic consumers. Two brands – Honey Bunches of Oats and Pebbles – are two of the top ten ready-to-eat cereal brands among Hispanic consumers, Ralcorp said.
Post will also look to launch more brands in “adjacent” categories, Ralcorp added, as it did when it introduced snack brand Pebbles Treats this year.
Ralcorp has started to look for candidates to become Post CEO after the spin off. With Stiritz set to become Post chairman, Ralcorp said its vice chairman Patrick Mulcahy will become its chairman.
Ralcorp has two co-CEO and presidents and one, Dave Skarie, plans to leave the business at the end of the year. The other, Kevin Hunt, will then become the sole president and CEO of Ralcorp.
