Updated to reflect analyst comments throughout
Just over year ago, Con Agra was making a third unsolicited push to buy Ralcorp, a maker of private label cereals, snacks and condiments for $5.2 billion. After Ralcorp rejected the offer, the company instead spun off its Post Cereals (POST) unit in early 2012.
Now ConAgra has agreed to buy Ralcorp for $90 a share in cash, proving that Ralcorp management's refusal to give in to early takeover was a savvy move that's netted longtime shareholders a higher price and a sizeable stake in the strongly performing Post spinoff.ConAgra's price values the company and its debt at $6.8 billion. Ralcorp shares surged over 26% in Tuesday afternoon trading to $88.80, while ConAgra shares gained nearly 5% to $29.62. On Tuesday morning, Mario Gabelli, the head of money management firm Gabelli Asset Management and a large Ralcorp shareholder, took to Twitter to celebrate the terms of Tuesday's deal. Gabelli highlighted ConAgra's $90 a share bid, which is below that the company's final unsolicited 2011 bid of $94 a share, and the merits of the Post spinoff, which gave investors one Post share for every two Ralcorp shares they owned. "Deals,deals and more Deals... ConAgra and Ralcorp (RAH) to merge (finally) ...RAH to get $90... One year ago, RAH spun-off POST...patience," wrote Gabelli in a breathless, but optimistic tweet. Gabelli Asset Management holds over 2% of Ralcorp and Post Holdings outstanding shares, according to Securities and Exchange Commission filings compiled by Bloomberg. ConAgra's $90 a share purchase price, "coupled with the amount shareholders received in Post Foods when it was spun out in February, values each pre-split share of Ralcorp at roughly $107, solidly above ConAgra's $94 bid last year," wrote William Blair Jon Andersen, in a note to clients that also highlighted Ralcorp missed on fiscal fourth quarter and full-year earnings on Tuesday. KeyBanc Capital Markets analysts calculate that ConAgra's acquisition could add double digits to the company's full year 2014 earnings estimates, which the firm now forecasts at $2.24 a share. The deal also furthers ConAgra's private label foods presence and bolsters international expansion efforts, according to KeyBanc. ConAgra said the deal will be financed with a mix of cash, the use of credit facilities and debt issuance, via a commitment from Bank of America Merrill Lynch. To maintain its investment-grade credit ratings, ConAgra also said it might issue up to $350 million in new equity. In the background of ConAgra's multi-year push for Ralcorp is a bitter fiscal debate that's moved from a summer 2011 debt ceiling standoff to a present fight over a so-called 'fiscal cliff' of budget cuts and tax increases. Both budget dramas have had real consequences for investors and for corporations looking to map out growth strategies. After the debt ceiling led to the downgrade of the U.S. government's bond rating by Standard & Poor's, companies retreated from merger and acquisition talks and some like Ralcorp decided to spin off business units, in a move to boost share prices amid an uncertain economic outlook.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV