ConAgra Foods, Omaha, Neb., reiterated its $94 per share, all-cash proposal to acquireRalcorp Holdings, Inc., a private label products company and a leader in frozen bakery foods. Ralcorp previously rejected this proposal, without dialogue with ConAgra Foods, on August 12, 2011.
Since August 12, ConAgra Foods said it has heard from many of Ralcorp’s shareholders who are urging Ralcorp to enter into negotiations with ConAgra Foods based on the strength of ConAgra Foods’ compelling $94 per share all-cash proposal. However, ConAgra officials say Ralcorp has continued to refuse ConAgra Foods’ attempts to engage privately and hold a constructive discussion regarding the strong value, strategic logic and certainty of its proposal.
As part of ConAgra Foods’ recent attempt to enter into discussions with Ralcorp, ConAgra Foods says it sent a presentation to Ralcorp’s Board of Directors, emphasizing the superior value and certainty of ConAgra Foods’ proposal. Despite repeated attempts by ConAgra Foods since its initial letter was sent to Ralcorp on March 22, 2011, Ralcorp has been unwilling to engage in discussions of any nature with ConAgra Foods. Ralcorp’s Board has reiterated that it is singularly focused on pursing a separation of its businesses as announced on July 14, 2011.
ConAgra Foods said it continues to believe its proposal of $94 per share in cash provides present value in excess of what Ralcorp can achieve on its own, including through its announced spin-off plans. ConAgra Foods’ proposal is highly attractive to Ralcorp shareholders for several reasons:
1. Compelling premium:ConAgra Foods’ $94 per share proposal represents:
a 32% premium to Ralcorp’s closing price of $71.42 as of April 28, 2011, the day prior to market rumors of a transaction;
a 44% premium to Ralcorp’s closing price of $65.31 on March 21, 2011, the day prior to ConAgra Foods’ initial letter to Ralcorp’s Board; and
a 32% premium to Ralcorp’s closing price of $71.43 on November 13, 2008, its all-time closing high prior to ConAgra Foods’ initial letter.
2. Attractive multiple: The proposal represents a multiple of 9.4x Ralcorp’s adjusted EBITDA of approximately $875 million for the twelve months ending June 30, 2011. This is an attractive multiple compared to many other private label and branded food transactions.
3. Value leakage to Ralcorp shareholders from announced spin-off plan: If Ralcorp proceeds with a separation, its shareholders will face significant value leakage estimated at more than $6 per share from (i) duplicative public company costs and (ii) financing fees and expenses related to a separation.
4. Upfront, certain value in ConAgra Foods proposal vs. uncertainty and risk in Ralcorp’s spin-off scenario: ConAgra Foods believes that its proposal is a more attractive alternative for Ralcorp’s shareholders than Ralcorp’s announced spin-off plan. The spin-off presents uncertainty and lesser value for Ralcorp’s shareholders. In contrast, ConAgra Foods’ $94 per share proposal would provide Ralcorp’s shareholders with compelling, certain value that reflects the strength of the combined businesses and the benefit of synergies ConAgra Foods expects to achieve.
5. ConAgra Foods’ interest is in the entire Ralcorp business: ConAgra Foods believes that the potential synergies from an acquisition of Ralcorp as it is configured today are greater than the synergies that would be realized in the acquisition of either of Ralcorp’s businesses on their own. In the event Ralcorp refuses to negotiate, ConAgra Foods will pursue other opportunities.
6. ConAgra Foods has communicated to Ralcorp’s Board its clear ability to complete a transaction: To ensure that Ralcorp’s Board fully understands ConAgra Foods’ ability to finance this potential transaction, ConAgra Foods said it shared with Ralcorp a “highly confident” letter that ConAgra Foods received from Bank of America Merrill Lynch with respect to the potential transaction. ConAgra Foods said it also has repeatedly communicated to Ralcorp’s Board that if it were permitted to perform customary due diligence, ConAgra Foods believes it could move expeditiously toward a definitive agreement.
ConAgra Foods again requests that Ralcorp enter into a constructive dialogue around the terms and conditions of ConAgra Foods’ all-cash proposal for the entire business. If ConAgra Foods and Ralcorp are not engaged in a constructive dialogue satisfactory to ConAgra Foods by 5:00pm Eastern time on September 19, 2011, ConAgra Foods will withdraw its proposal.