ConAgra to buy Ralcorp, become biggest US maker of private-label foods

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NEW YORK — ConAgra Foods will become the nation’s biggest maker of store-brand foods with a $5 billion purchase of Ralcorp that expands its stake in the growing market for cereals, crackers and other packaged foods sold under private labels.

The deal announced Tues­day caps a year of acquisitions for ConAgra, which makes brands including Banquet, Chef Boyardee and Marie Callender’s.

The company, based in Omaha, Neb., made multiple attempts to buy Ralcorp last year.

Store brands are gaining popularity with price-conscious shoppers. Super­markets and drug stores have been working to improve the image of their brands as a way to control rising costs for name brands.

ConAgra CEO Gary Rod­kin said private-label products are growing at twice the rate of name brands and account for 18 percent of the packaged food market.

In a new report this week, however, market researcher SymphonyIRI wrote that the growth of private label products has “hit a proverbial glass ceiling.”

ConAgra already made private-label products along with name-brand foods that include Slim Jim, Healthy Choice and Hebrew National. With the Ralcorp purchase, about a quarter of the combined company’s $18 billion in sales will now come from private labels.

Ralcorp, based in St. Louis, makes products for a wide range of companies including Wal-Mart Stores Inc., Kroger Co. and McDonald’s Corp.

Rather than merely mimicking name brands, Rodkin said retailers increasingly want to cultivate customer loyalty by offering unique products. He cited CostCo and Trader Joe’s as companies that are significantly developing their store brands.

The companies did not say whether there would be layoffs for their 36,000 employees, adding that the deal was about “growth.”

They said operational decisions would be made during the integration process.

This isn’t the first time ConAgra has tried to buy Ralcorp. Last year, Ralcorp spurned several bids by ConAgra, including an offer for $5.17 billion, or $94 per share. At the time, Ralcorp’s board said its plan to spin off its Post cereal business and build its private-label business would provide the best value for shareholders. The latest $90 per share deal by ConAgra is close to what it offered before Ralcorp’s split with Post.

ConAgra will pay Ralcorp Holdings Inc. stockholders $90 per share, a 28 percent premium to its Monday closing price of $70.23. St. Louis-based Ralcorp currently has about 55 million outstanding shares, according to FactSet.

The companies value the transaction at about $6.8 billion, when debt is included. ConAgra said it plans to finance the acquisition mostly with available cash, existing credit facilities and new borrowings. It expects about $225 million in cost savings on an annual basis by the fourth full fiscal year after the deal closes.

The deal, which was unanimously approved by both companies’ boards, is expected to close by March 31. It still needs Ralcorp shareholder approval.

ConAgra said that the buyout should be of modest benefit to its fiscal 2013 financial results. The company still anticipates fiscal 2013 earnings in a range of $2.03 to $2.06 per share, excluding the Ralcorp deal.

Analysts predict earnings of $2.06 per share.

Also on Tuesday, Ralcorp reported that its loss narrowed to $44.2 million, or 80 cents per share, for the quarter ended Sept. 30. That compares with a loss of $424.1 million, or $7.54 per share, in the year-ago period. Revenue rose to $1.07 billion from $990.4 million, on the strength of acquisitions and higher prices.

Results for both quarters reflected hedging and impairment charges, as well as costs for restructuring and plant closures.

Ralcorp shares jumped $18.59, or 26.5 percent, to $88.82 in Tuesday afternoon trading. ConAgra gained $1.40, or 5 percent, to $29.69.

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Follow Candice Choi at www.twitter.com/candicechoi

AP Business Writer Josh Funk contributed to this report from Omaha, Neb.


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