Blog: Dean BestCould Post spin off make Ralcorp easier to acquire?

Dean Best | 16 July 2011

It may have a low profile internationally but Ralcorp Holdings is a major player on the US private-label landscape.

However, it is the company's branded business - Post Foods, the third-largest owner of branded cereals in the US - that has made headlines in the last 24 hours.

For Ralcorp, which acquired Post from Kraft Foods in 2008, has decided to spin off the business into a separate publicly-listed company.

"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," Ralcorp chairman William Stiritz said yesterday (14 July).

Post certainly has had a challenging 18 months and there is logic in dividing Ralcorp in two to allow management teams to focus on what are distinct businesses - branded cereal and own label. Ralcorp said Post would look at, among other initiatives, building its cereal brands and moving into "adjacent categories". For its part, Ralcorp said it would look to grow through acquisitions.

However, in the background to all this is the recent takeover intererst in Ralcorp from ConAgra Foods, which had a US$4.9bn bid turned down in May.

ConAgra reacted to the announcement yesterday by saying its plan to buy "all of Ralcorp continues to be in best interest of their shareholders".

Nevertheless, there is the possibility that a Ralcorp only focusing on private label could be easier for ConAgra to buy. ConAgra insists it wants to buy the entire company but some analysts believe its management is more interested in Ralcorp's own-label operations.

That said, Ralcorp has insisted the spin off would "unlock significant value for our shareholders". This belief - and its intention to "aggressively" pursue acquistions in own label - suggests the company is confident in its ability to deilver returns for investors and may not be interested in a sale.


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