Ralcorp Rebuffs ConAgra's Third Purchase Offer

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August 16, 2011

The third time was no charm for ConAgra as the food manufacturer’s sweetened offer to buy Ralcorp for $94 a share was greeted with a firm “no” from Ralcorp's board.

“After careful review, our board of directors has determined that the separation of Post Foods from Ralcorp will better allow each company to focus on strategies specific to their particular businesses, thereby unlocking additional significant value for our shareholders,” wrote William P. Stiritz, Ralcorp’s chairman in response to the offer. “We are firmly committed to this plan and therefore, we have unanimously determined that we have nothing further to discuss.”

Earlier this year, Ralcorp adopted a poison pill initiative in an attempt to block a potential hostile takeover as ConAgra escalated its pursuit. Expanding its private label portfolio is critical to the company as shoppers continue to seek out value options in the weak economy and consumers remain wary of another recession. So too, have the budget conscious shopping habits stuck, even as the worst of the recession lifted. Many shoppers that switched to store brands have not returned to the national brand alternatives, and retailers are increasingly aware of a more permanent shift to private label. ConAgra’s ability to remain competitive may be determined by its store brand business, according to some analysts.

Ralcorp said it’s firmly intent on splitting the company into two: one for its Post-brand cereals and another for its private label business that includes multiple supermarket store brands. Just last week, Ralcorp acquired Sara Lee’s private label refrigerated dough business for $545 million.

ConAgra’s first offer was for $82 per share in March, then again for $86 a share in May. The more recent $94 per share bid values the company at $5.18 billion, still low according to some analyst estimates that place the company’s value between $98 and $104 per share. The acquisition from Sara Lee boosts Ralcorp’s value and pushes it even further out of ConAgra’s reach.

While Ralcorp remains firm in its refusal, ConAgra seems doggedly determined. If successful, ConAgra would become the third largest packaged foods company in the United States, and be better positioned in the private label category.

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