Ralcorp Spins Off Post to Thwart ConAgra Foods Acquisition

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July 19, 2011

Ralcorp and Post Foods will be separated in a tax-free spin-off to Ralcorp shareholders by the Ralcorp Holdings’ board of directors to fend off a $4.9 billion bid from ConAgra Foods Inc.

The maker of Raisin Bran cereals and myriad private-label food brands, Ralcorp decided to spin off Post Foods after failing to sell the unit to rival food makers or private-equity firms.

Ralcorp rejected ConAgra’s most recent offer May 4, its second snub of the Omaha, Neb.-based food manufacturer. ConAgra first approached Ralcorp in February and Ralcorp began exploring a sale of Post soon after.

ConAgra issued a statement in response to Ralcorp’s spin off announcement: "We have seen the announcement from Ralcorp and we believe our proposed acquisition of all of Ralcorp continues to be in the best interests of their shareholders."

The separation will be completed in four to six months, following the receipt of an IRS tax ruling or satisfactory legal opinion as to the tax-free nature of the transaction, final board approval and other customary conditions, Ralcorp said in a statement.

Once the transaction is complete, Ralcorp shareholders will hold interests in two standalone, publicly-traded companies — Ralcorp and Post Foods.

Ralcorp's strategic plan will focus on enhancing its position as a growth-through-acquisition private brand leader with a diverse product, customer and input array.

Ralcorp’s private brand net sales, private brand segment profit and private brand adjusted EBITDA were $3.5 billion, $390 million and $475 million, respectively, for the twelve months ended March 31, 2011. The corresponding five-year sales growth rates were 15 percent, 20 percent and 20 percent, respectively, through March 31, 2011.

As part of the separation, Post Foods will issue approximately $1.2 billion of debt, while Ralcorp will receive net cash proceeds of approximately $1 billion. Ralcorp said it intends to use the proceeds to reduce debt, and make private brand acquisitions and additional share repurchases.

“The board has been carefully evaluating tax-free separation alternatives for some time," said William P. Stiritz, chairman of Ralcorp. "We firmly believe the separation of Post Foods from Ralcorp by way of a tax-free spin-off will unlock significant value for our shareholders. As independent companies, both Ralcorp and Post Foods will be better positioned to focus on strategies specific to their particular businesses, thereby improving the opportunities to deliver increasing shareholder value.”

After the spin off, co-CEO Kevin Hunt will be Ralcorp’s CEO, while the company formed a committee to search for a CEO for Post. Stiritz will become chairman of Post Foods. J. Patrick Mulcahy has been appointed vice chairman of Ralcorp’s board and will become chairman after the separation.

The transaction does not require shareholder approval. After the transaction is complete, Ralcorp will continue to trade on the New York Stock Exchange and Post Foods is expected to do the same.

Ralcorp is the nation's largest store brand manufacturer in 12 categories, with aggregate annual sales of $26 billion.

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