ConAgra's Split Creates Two Tasty Acquisition Targets

Companies with a hankering for Slim Jims or frozen potatoes will be able to satisfy their M&A cravings after ConAgra's split next year.
By Richard Collings ,

ConAgra Foods'  (CAG) - Get Report decision to split into separate publicly traded companies will create two pure-plays that will each be more attractive as a potential acquisition target. The Omaha, Neb.-based food conglomerate said Wednesday it will split the company via a tax-free spinoff.

When companies simplify their structure to become more focused on a particular industry or silo within an industry, they become more attractive because buyers are often looking for a specific missing piece or bolt-on that will be complementary or synergistic with what they already own. The more diversified a possible target is, the more likely it will own unattractive parts acquirers would rather not have to pay for and have the responsibility for shutting down or selling later on.

Shareholders of ConAgra stand to benefit from the sale of either of the divisions because they will own shares in each of the companies after the spinoff is completed, which is expected to occur in the fall of 2016.

An offer at enough of a premium for either business would certainly get the attention, if not the approval, of Barry Rosenstein's Jana Partners, which has pressured ConAgra to take a number of actions to improve the company's fortunes.

Jana's pressure, in addition to the Wednesday announcement, also likely led to the sale of ConAgra's private-label food business to Treehouse Foods (THS) - Get Report for $2.7 billion in early November.

As a result of the split, one entity will be renamed Conagra Brands and based in Chicago. The unit will be comprised of the company's branded food business, including Hunt's ketchup, Peter Pan peanut butter, Slim Jim meat jerky snacks, Chef Boyardee canned pasta meals and Orville Redenbacher's popcorn products, among others.

The unit will also include the branded portion of the food service business as well as Spicetec Flavors & Seasonings, JM Swank and the company's stake in the Ardent Mills joint venture.The entire branded division accounted for fiscal 2015 revenue of $7.2 billion.

The other entity will be comprised of its frozen potato food service unit operated under the Lamb Weston name. The Lamb Weston business will be comprised of frozen potato, sweet potato, appetizer and other vegetable products, as well as frozen products under licensed brands and private brands, as well as interests in several joint ventures, including Lamb Weston and Meijer in Europe. It generated fiscal 2015 revenue of $2.9 billion while contributing most of the unit's $570 million in operating profit during that time period.

Consolidation among both branded food and food service companies is a good sign there are potential buyers for each of the separate companies. Food-service behemothSysco (SYY) - Get Report , after a failed attempt to gobble up competitor US Foods, is likely still on the lookout for buys to bulk up its offerings, for example. Executives have historically said that acquisitions are a key part of Sysco's growth and that the company would continue to play a role in industry consolidation.

On the branded food side, a number of consumer packaged food companies or private equity firms could eye all or parts of Conagra Brands.

Kraft Heinz (KHC) - Get Report , for example, is partly based in Chicago, where ConAgra Brands' new headquarters will be located, and is likely to make more buys in the space. It is expected, however, to spend another year or so digesting the buy of Kraft that created the behemoth it is. Kraft Heinz's major backers include Brazilian private equity firm 3G Capital and Warren Buffett's Berkshire Hathaway (BRK.A) - Get Report (BRK.B) - Get Report .

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