Ralcorp to Spin Off Post Cereals

It’s certainly another defense against being acquired but it’s also being second-guessed as an admission that brands and private labels don’t mix. Whichever, Ralcorp Holdings Inc. (www.ralcorp.com), St. Louis, announced on July 14 plans to spin off its Post cereal business into a separate company.

Private-label leader Ralcorp acquired the branded cereal business from Kraft Foods in 2008 for $2.7 billion. But the planned spin-off comes in the face of an unsolicited takeover attempt from ConAgra Foods, which has been simmering since May 4. ConAgra offered $86 a share, a total of $4.9 billion, for Ralcorp specifying its interest in growing its private label business.

ConAgra issued a one-sentence comment on the news: “We have seen the announcement from Ralcorp and we believe our proposed acquisition of all of Ralcorp continues to be in the best interests of their shareholders.”

The Post deal will be a tax-free spin-off to existing Ralcorp shareholders. Ralcorp said it will use proceeds, estimated at about $1 billion, “to reduce debt, aggressively pursue private brand acquisitions and pursue additional share repurchases under the company's remaining share repurchase authorization of approximately five million shares.”

Ralcorp last year paid $1.2 billion for American Italian Pasta Co., which manufactures both regional brands and private labels of noodles. Since 1997, Ralcorp completed 24 private brand acquisitions totaling over $2.5 billion in combined annual sales.

The split could come in four to six months, following satisfactory Internal Revenue Service and legal rulings.

“The board has been carefully evaluating tax-free separation alternatives for some time,” said William Stiritz, chairman of Ralcorp. “We firmly believe the separation of Post Foods from Ralcorp by way of a tax-free spin-off will unlock significant value for our shareholders. As independent companies, both Ralcorp and Post Foods will be better positioned to focus on strategies specific to their particular businesses, thereby improving the opportunities to deliver increasing shareholder value.”

Stiritz will lead the board of directors at Post Foods. J. Patrick Mulcahy, vice chairman of the Ralcorp board, will move up to Ralcorp chairman. Ralcorp also announced some management changes:

  • Dave Skarie, co-CEO and president of Ralcorp, will retire Dec. 31. In the interim, he will be responsible for leading the separation of Post Foods from Ralcorp.
  • Kevin Hunt, co-CEO and president of Ralcorp, will assume the role of president/CEO upon completion of the separation.
  • Ron Wilkinson, a corporate VP and president of Ralcorp Cereal Products, will help with the separation but will stay with Ralcorp as corporate VP and president of Ralston Foods and Bloomfield Bakers.
  • The Ralcorp Board established a search committee to look for a CEO of Post Foods upon completion of the separation.

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