Event-driven investment manager JANA Partners initiated a new 7.23% stake in ConAgra Foods (CAG, Financial) on June 8, GuruFocus Real Time Picks data show.
The activist position consisted of 30,863,322 shares, including 19,032,000 options to purchase shares, which cost the firm $540 million in aggregate, including brokerage commissions.
ConAgra is a packaged food company that owns an array of brands such as Healthy Choice and Marie Callender’s. JANA Partners, which describes itself as applying “a fundamental value discipline” to find companies with “one or more specific catalysts to unlock value,” said why they took interest in the ConAgra and announced plans to nominate board candidates in the SEC filing disclosing the new stake:
“The Reporting Persons acquired the Shares because they believe the Shares are undervalued and represent an attractive investment opportunity. JANA believes that the Issuer has significantly underperformed in shareholder value creation. Most significantly, the acquisition of Ralcorp Inc. in January 2013, which in JANA’s opinion was the most significant recent strategic decision made by the Issuer’s Board of Directors (the “Board”), has been followed by disappointing performance for shareholders, repeated guidance misses, negative revisions to long term earnings targets, no dividend per share growth, and operating performance challenges. Issues with this acquisition led to the Issuer taking a $1.3 billion impairment on March 26, 2015, after which JANA began purchasing the Shares and analyzing opportunities for improved shareholder value creation. JANA believes that in the period since the Ralcorp acquisition, the Board has failed to adequately address the shareholder value destruction and persistent underperformance that followed the Ralcorp acquisition.”
ConAgra’s share price has advanced 56.7% over the past five years, closing at $39.12 on Thursday, near its 10-year record high. It also grew revenue at a rate of 9.3%, EBITDA at 3% and book value at 3.1% on average annually over the past five years. EPS declined at a rate of 0.9% for the same period.
The company issued the following statement Thursday in response to JANA Partners’ plans:
“ConAgra Foods’ Board of Directors and management team are committed to acting in the best interests of all shareholders, and we welcome shareholder engagement. We look forward to opening discussions with JANA Partners after the ConAgra Foods’ June 30 fourth-quarter earnings announcement, and discussing their views on shareholder value creation at ConAgra Foods.
Additionally, the Board of Directors has amended the company’s bylaws to extend until July 8 the deadline for the submission by shareholders of nominees for election to the Board of Directors. This extension applies for the September 2015 annual meeting. Previously, the deadline was June 21.”
The $16.6 billion market cap ConAgra has a P/B ratio of 3.71, near a 10-year high, and a P/S ratio of 0.9, near a one-year high.
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