Conagra Brands Buys Pinnacle Foods in $8.1 Billion Deal

Cash-and-stock deal will create frozen foods giant

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Jun 27, 2018
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Encouraged by an environment ripe with opportunities for consolidation, Conagra Brands Inc. (CAG, Financial) announced on Wednesday it is acquiring Pinnacle Foods Inc. (PF, Financial) for about $8.1 billion.

According to the terms of the cash-and-stock deal, Pinnacle shareholders will receive $43.11 per share in cash and 0.6494 shares of Conagra common stock per share owned. When debt is included, the deal is valued at $10.9 billion.

Upon closing, Pinnacle shareholders will own approximately 16% of the combined company.

The deal, according to CNBC, is the result of continuous back-and-forth discussions between the two companies that have spanned several years. It was finally pushed to the finish line after activist investment firm Jana Partners (Trades, Portfolio) disclosed a 9.1% stake in Pinnacle in April. At that time, the firm, which also has a smaller position in Conagra, said it planned to persuade the company to sell.

Changing with the times

Both companies have undergone transformations in recent years, spurred, in part, by changing consumer tastes.

Conagra, which has seen sales slide over the last five years, has modified its portfolio, which includes brands like Hunt’s, Marie Callendar’s and Orville Redenbacher’s, to incorporate smaller snack brands like Angie’s Artisan Treats and Thanasi Foods.

Through this deal, the Chicago-based company will benefit from gaining Pinnacle’s vast portfolio of frozen food brands.

Bloomberg reported that as demand for frozen goods grows, the union of Conagra, which produces Healthy Choice frozen dinners, and Parsippany, New Jersey-based Pinnacle, which is known for its Bird’s Eye frozen vegetables, will create an industry giant.

Conagra reported on Wednesday that total organic net sales grew 2% in the fourth quarter. Sales in its refrigerated and frozen business saw 5.2% growth.

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In a statement, Conagra CEO Sean Connolly praised the company’s progress.

"After three years of transformative work to create a pure-play, branded food company, we are well-positioned to accelerate the next wave of change," he said.

He also expressed his enthusiasm for the deal with Pinnacle, calling it “an exciting next step.”

"The addition of Pinnacle Foods' leading brands in the attractive frozen foods and snacks categories will create a tremendous opportunity for us to further leverage our proven innovation approach, brand-building capabilities and deep customer relationships,” he said.

Pinnacle has also had a bit of a makeover, seeing annual sales grow from $2.4 billion in 2013 to $3.14 billion in 2017. While the company, whose brands also include Duncan Hines and Vlasic, continued to see strength in its frozen foods segment, it has also benefited from the acquisition of Boulder Brands, which produces gluten-free foods and snacks.

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Great expectations

The benefits the companies expect the deal to generate upon closure include $215 million in annual run-rate cost synergies by fiscal 2022 and low single-digit adjusted earnings per share accretion by the end of fiscal 2020.

In a statement, Mark Clouse, CEO of Pinnacle, said the transaction will provide shareholders with “substantial and immediate value.”

“The portfolios and capabilities of both enterprises are impressive and complementary,” he said. “We look forward to working through a seamless transition with the Conagra Brands team."

The companies expect the deal to close by the end of the year.

Investor sentiment muted

Shareholders of both companies were not enthused by the announcement.

On Wednesday morning, shares of Conagra tumbled 7.25% to $35.46. Pinnacle shares experienced a less severe dip, falling 4.11% to $65.07.

Year to date, GuruFocus estimates Conagra’s stock has declined 5% while Pinnacle’s stock has climbed 10%.

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Disclosure: No positions.