ConAgra (NYSE:CAG) said Wednesday it sweetened its bid to acquire Ralcorp (NYSE:RAH) to $4.9 billion in cash, plus debt, in an effort to create the third largest packaged food company in the U.S.
The Omaha-based maker of brands such as Slim Jim, Snack pack, Egg Beaters and PAM bid $86 a share, which represents a 31.7% premium to Ralcorp’s closing price on March 21, the day ConAgra sent over its initial $82 proposal, though it only offers a 3% premium to Ralcorp's close on Tuesday.
Ralcorp, which makes the Post cereal brand, has excelled in the private label and branded consumer foods segments, also manufacturing various pastas, crackers jams, syrups and frozen waffles. ConAgra said the deal would help expand its private label business.
“Ralcorp has made significant progress with its businesses, and we are excited about the prospect of building on its number one position in private label and enhancing its iconic brands, like Post, in very important categories,” said ConAgra CEO Gary Rodkin. “By combining our two businesses, we will create one of the top U.S. food companies, with product offerings across a wide range of price points, categories and channels.”
The combined company would likely reach $4 billion in annual private labels sales, and would be well-positioned to capitalize on the sector in the U.S., which has grown to 18.9% of sales in the supermarket channel to 16.4% over the last 5 years, the companies said in a joint statement.
ConAgra would still concentrate half of its business on its retail brand, and split the other half evenly between commercial foodservice and private label. It estimates cost savings would be $250 million by the third year of the deal’s closing.
ConAgra has expressed its interest in acquiring Ralcorp since February. It sent a written proposal in March to buy the company for $82 a share, though the bid was rejected.
The latest offer by ConAgra comes after Ralcorp said on Sunday that its board rejected an unsolicited offer from a third-party, though it did not disclose the bidder.