Conagra to Acquire Pinnacle Foods for $10.9B

In a deal bringing together portfolios of emerging and iconic brands in categories such as frozen and snack foods, Conagra said June 27 it would acquire Pinnacle Foods for $10.9 billion in cash and stock.

The deal, which has been approved by the boards of both companies, would create an $11 billion company with a leading position in frozen foods and an expanded presence in categories such as refrigerated meals and snacks. Conagra described the frozen category as “growing and on-trend.”

Chicago-based Conagra is the parent of dozens of consumer packaged goods (CPG) food brands, including Marie Callender's, Reddi-Wip, Hunt’s, Healthy Choice, Slim Jim, Orville Redenbacher’s and emerging brands such as Alexa, Blake’s and Frontera. Parsippany, N.J.-based Pinnacle owns the Birds Eye, Duncan Hines, Earth Balance, Evol, Gardein, Glutino, Hungry-Man, Log Cabin, Udi's, Vlasic, and Wish-Bone brands.

The deal, which is set to close by the end of the calendar year, has been rumored for some time, and may indicate another big move in food business precipitated in part by the activist investor Jana Partners. Jana earlier this year disclosed 9.5% ownership stake in Pinnacle and indicated in a filing that it had intentions of discussing a strategic plan with Pinnacle’s management.

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A little more than a year ago, Jana took a similar tactic at Whole Foods Markets, and that company subsequently joined forces with Amazon in a deal still reverberating in the retail food world.

Conagra is nearing the end of a three-year transformation plan to reshape its brand portfolio and slash costs. Its acquisitions in recent years include emerging frozen brands such as Alexa and Blake’s and Duke's premium meat snacks, while it has divested numerous brands, as well. CEO Sean Connolly said in a statement that the Pinnacle acquisition would be a “next step” in its evolution.

“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,” Connolly said. “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. With greater scale across leading, iconic brands, an unwavering focus on driving profitable growth, and a strong balance sheet and cash flow, we are creating a tremendous platform to drive meaningful shareholder value.”

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Conagra had sales of $7.8 billion in fiscal 2017, with nearly a quarter of those sales to Walmart.

Officials said the combination would generate synergy savings of more than $200 million by 2022.

“Today's transaction provides Pinnacle Foods shareholders with substantial and immediate value, as well as the opportunity to participate in the significant upside potential of the combined company," said Pinnacle Foods CEO Mark Clouse said.

Under the terms of the agreement, each share of Pinnacle Foods’ stock will be converted into the right to receive $43.11 per share in cash and 0.6494 shares of Conagra Brands stock, so Pinnacle holders would wind up with about 16% of the combined company. The $10.9 billion purchase price is expected to be financed with $3 billion of Conagra equity issued to Pinnacle Foods shareholders and $7.9 billion in cash, funded with $7.3 billion of transaction debt and about $600 million of incremental cash proceeds from a public equity offering and/or divestitures, Conagra said.