Conagra Pinnacle bought for $8.1 bn.
Conagra and Pinnacle Foods have been investing aggressively to become the two fastest-growing frozen meal companies, according to analysts, with such brands as Birds Eye, Power Bowls and Hungry-Man, which tout more protein and fewer artificial ingredients. The combined market capitalization of Conagra and Pinnacle Foods is about $23 bn., on par with rival Kellogg Co. The deal comes at a time when scale and negotiating power are crucial to packaged goods companies being squeezed by high commodities and freight costs and pressure from retailers for low pricing.
Conagra Chief Executive Officer Sean Connolly told Reuters the deal would help the company cut down on supply chain costs and strengthen its relationship with retailers. “We can do a better job of filling full truckloads when we ship to our customers and work more efficiently,” Connolly said, adding that the company will use the cash from cost savings to invest more in developing its brands.
Chicago-based Conagra said the two packaged food companies would have reported a combined $11 bn. in full-year proforma net sales, with $4.9 bn. in frozen food sales. It expects to save about $215 mill. by the end of the fiscal year 2022. Pinnacle shareholders would get $43.11 per share in cash and 0.6494 Conagra shares for each Pinnacle share, implying an offer price of about $68 a share. Including debt, the deal is valued at $10.9 bn. It is expected to close by the end of calendar 2018.
Talks between Conagra and Pinnacle, however, restarted after activist hedge fund Jana Partners LLC in April bought a 9.1% stake in New Jersey-based Pinnacle and urged the company to look for a sale. Conagra stock slid 7% to $35.56 and Pinnacle fell 4.2% to $65.
Stifel analyst Christopher Growe said the implied offer price was below the $75 per share he expected. He said the offer was “a bit surprising,” citing other recent deals, such as General Mills Inc’s purchase of Blue Buffalo, which have reached up to 19 times earnings before interest, taxes, depreciation and amortization. Goldman Sachs and Centerview Partners are Conagra’s financial advisers, while Evercore and Credit Suisse are advising Pinnacle.