Conagra to Buy Pinnacle for $10.9 Billion

June 27, 2018
Two years of courtship ends in combination of age-old brands.

The rumors were true and this time a deal was struck. Conagra Brands Inc. ended a two-year-long courtship of Pinnacle Foods Inc. by offering to buy the smaller company for $10.9 billion in cash and stock plus assumption of debt, it was announced today (June 27).

Combining Conagra's sales at $8 billion and Pinnacle's at $3 billion would put Conagra back in the top 12 of the Food Processing Top 100©, a spot it hasn't held since its fiscal 2015.

Conagra's news release talked of "the combination of two growing portfolios of iconic brands," but that also could be interpreted to mean age-old brands in mature categories. Pinnacle's brands include Armour, Duncan Hines, Hungry-Man, Log Cabin, Vlasic and Wish-Bone. But the company recently acquired up-and-coming brands Earth Balance, EVOL, Erin's, Gardein, Glutino and gluten-free Udi's, and the mature Birds Eye brand has shown new vitality.

Conagra has a portfolio of older No. 2 and 3 brands, such as Hunt's ketchup, Wesson oil, Chef Boyardee sauces, Banquet and Marie Callender's frozen dinners and Peter Pan peanut butter. But it also owns the Healthy Choice brand and recently bought Angie's Boomchickapop popcorn and PF Chang's and Bertolli frozen ethnic dinners.

"The transaction will enhance Conagra Brands' multi-year transformation plan and expand its presence and capabilities in its most strategic categories, including frozen foods and snacks," the news release said. Conagra CEO Sean Connolly added, "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."

Conagra, our 2013 Processor of the Year, as recently as its fiscal 2014 was a nearly $18 billion company. That was the year after it acquired the private label businesses of Ralcorp in a $6.8 billion transaction that was widely criticized as too-high a pricetag. It did turn out disastrously for Conagra, which sold the same businesses three years later to TreeHouse Foods for $2.7 billion.

Sean Connolly took over as CEO in 2015 and began reshaping the company.

Pinnacle Foods, our current (December 2017) Processor of the Year, was created in 2001 with venture capitalists buying up discarded and bankrupt businesses: Vlasic pickles, Hungry-Man frozen dinners and Open Pit barbecue sauce. While still maintaining significant debt, it's grown steadily and remained profitable.

Also today, Conagra announced its fiscal 2018 results (its fiscal year ended May 27). Sales were $7.9 billion, up 1.4 percent, and net income was $812 million, up 25 percent – but adjusted gross profit decreased 0.5 percent.

Pinnacle shareholders, who still must approve the deal, will get a combination of cash and stock and will end up owning about 16 percent of the combined company. The boards of both companies have approved the deal, which is expected to close by the end of this year.

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