(By Balaseshan) ConAgra Foods Inc. (NYSE: CAG) has agreed to buy private label food manufacturer Ralcorp Holdings Inc. (NYSE: RAH) for about $6.8 billion, including the assumption of debt.
Under the terms of the agreement, Ralcorp shareholders will receive $90.00 per share in cash for each outstanding common share held, representing a 28.2% premium to the closing price of Ralcorp's common stock on November 26.
ConAgra Foods expects the transaction to provide attractive sales and earnings per share (EPS) growth over time. As this transaction is expected to close by March 31, 2013, management expects it to have a modest benefit on fiscal 2013 financial results and will quantify that benefit in the coming months.
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Excluding any benefit from this transaction, ConAgra's expectations for fiscal 2013 EPS remain unchanged at $2.03 to $2.06, adjusted for items impacting comparability, while Street predicts $2.06.
ConAgra expects to achieve about $225 million of cost synergies on an annual basis by the fourth full fiscal year after closing. The acquisition of Ralcorp is expected to be financed primarily with cash on hand, existing credit facilities and new borrowings, for which ConAgra Foods has received a commitment letter from BofA Merrill Lynch.
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This transaction creates one of the largest packaged food companies in North America, with sales of about $18 billion annually and more than 36,000 employees. It will also position ConAgra Foods as the largest private label packaged food business in North America, with combined private label sales of about $4.5 billion.
In a separate release, Ralcorp Holdings reported fourth quarter adjusted EPS excluding acquisition-related amortization of $0.92, up from $0.86 last year, while Wall Street expectations were $0.87.
Sales grew 8% to $1.067 billion, as a result of acquisitions completed during fiscal 2012, primarily Refrigerated Dough and Petri, as well as higher net pricing in response to rising commodity costs, partially offset by lower volumes. Street analysts predicted $1.10 billion.
CAG closed Monday's regular session down 0.42% at $28.29, while RAH ended down 1.67% at $70.23.