Ralcorp Refuses to Start Talks With ConAgra About Bid
September 19, 2011, 5:14 PM EDTBy Matthew Boyle
(Updates with closing share price in fourth paragraph.)
Sept. 19 (Bloomberg) –- Ralcorp Holdings Inc. declined to enter talks with ConAgra Foods Inc. about its $5.18 billion takeover bid, ending a pursuit that began in March and leaving ConAgra to seek other acquisition targets. Both companies’ shares fell.
Ralcorp said in a statement today that its board, led by Chairman William Stiritz, met again to consider ConAgra’s $94-a- share offer and unanimously rejected it, deciding its previously announced split into two companies “will unlock value for shareholders.”
“Looking forward, the management of this valuable asset will not be a combination of the past, but rather it will be creative, imaginative and adaptive in pursuit of shareholder value creation –- nothing is off the table,” Stiritz said in the statement.
Ralcorp fell 96 cents to $75.23 at 4:15 p.m. in New York Stock Exchange composite trading. ConAgra slid 54 cents to $23.39.
ConAgra said Sept. 13 it would withdraw its $94-a-share offer for Ralcorp by 5 p.m. New York time today if the company doesn’t enter into negotiations.
With no deal, “the pressure will be on both companies to communicate their respective Plan Bs in a timely manner” to shareholders, Andrew Lazar, a Barclays Capital analyst in New York, said in a Sept. 14 note to clients. Ralcorp is under more pressure because it spurned a $94-per-share offer that could have gone even higher, he said.
Store-Brand Foods
ConAgra, based in Omaha, Nebraska, may seek another way to boost sales of store-brand foods, a market that has grown as some shoppers trade down, said Erin Lash, an analyst at Morningstar Inc. in Chicago. The maker of Chef Boyardee pasta and Orville Redenbacher’s popcorn had said it would pursue other opportunities if Ralcorp refused to negotiate.
TreeHouse Foods Inc., the maker of private-label soups, salad dressings and coffee creamers, generated $1.8 billion in sales last year, compared with about $3 billion for Ralcorp. TreeHouse might lack the size and breadth of products to be an attractive target, said John Baumgartner, an analyst at Telsey Advisory Group in New York.
“I don’t know if TreeHouse would have the same allure as Ralcorp,” he said in an interview. “TreeHouse has more room to grow via acquisitions rather than being a target itself.”
TreeHouse’s investor relations department didn’t immediately return a phone message seeking comment.
Dividend Increase
ConAgra also may buy back shares or boost its dividend, according to Alexia Howard, an analyst at at Sanford C. Bernstein in New York, and Jack Russo, an analyst at Edward Jones & Co. in St. Louis.
ConAgra, which plans to report first-quarter earnings tomorrow, may increase its dividend to 25 cents a share from 23 cents tomorrow, according to Bloomberg dividend forecasts, which look at seven criteria, including dividend history and public estimates.
“While we are disappointed in Ralcorp’s response, we will continue to pursue other growth opportunities,” said Teresa Paulsen, a ConAgra spokeswoman. ConAgra has faced increasing competition from more popular brand-name products including H.J. Heinz Co.’s Ketchup, which competes with ConAgra’s Hunt’s line.
Three Rejections
Ralcorp, the St. Louis-based maker of Post cereals, in August rejected ConAgra’s third offer, valued at $94 a share, after earlier spurning bids of $86 and $82 a share.
The company, which sells cereals, cookies and pasta under retailers’ own brands, said in July that it was planning to spin off its Post Foods unit to focus on making private-label goods. Last month, Ralcorp agreed to buy Sara Lee Corp.’s North American refrigerated-dough unit for $545 million to bolster its private-label brands with pizza and toaster pastries.
Spinning off Post, whose brands include Honey Bunches of Oats and Fruity Pebbles, “will prove to be a value-destroying investment for Ralcorp’s shareholders” as Post trails rivals Kellogg Co. and General Mills Inc. in the ‘highly-competitive’’ cereal category, said Lash, the Morningstar analyst.
Post’s sales have declined since Ralcorp bought the business from Kraft Foods for about $2.66 billion in 2008. Stiritz, 77, who will become chairman of Post Foods after the split, said in the statement that he would spend “as long as it takes” for Post to reach its “untapped potential.”
--Editors: Robin Ajello, Kevin Orland
To contact the reporter on this story: Matthew Boyle in New York at mboyle20@bloomberg.net
To contact the editors responsible for this story: Robin Ajello at rajello@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net
