ConAgra Foods CEO Gary Rodkin today (27 November) claimed the US food group’s planned acquisition of private-label rival Ralcorp Holdings will put the company “front-of-centre” with retailers in North America.
Rodkin said a takeover of Ralcorp, which would form the largest private-label manufacturer in North America, would make the combined company one of the “most attractive” suppliers in the market.
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Speaking to analysts after the companies announced their deal today (27 November), Rodkin said, would possess ConAgra’s “strong brand portfolio” and the “scale” of Ralcorp, with its “leading positions across many categories”.
ConAgra owns brands including Peter Pan peanut butter and Hunt’s ketchup but it has spent the past 12 months building a private-label business with a series of acquisitions – ironically after Ralcorp turned down a number of takeover bids from the company last summer.
ConAgra’s deal-making in the US private-label sector, which is smaller and more fragmented than in other countries but seen by some as having more growth potential, has created an own-label business worth $900m in sales, Rodkin said. Ralcorp’s annual revenues, announced today, were $4.32bn in the 12 months to the end of September.
Ralcorp has accepted a US$90-a-share bid from ConAgra, which values the company at $6.8bn, including debt. Last summer, Ralcorp, which then also included branded cereal business Post, turned down a $94-a-share offer. It opted instead to spin off its branded cereal arm.
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By GlobalDataBarclays Capital analyst Andrew Lazar asked what ConAgra saw in Ralcorp – and in the wider private-label industry – that had prompted the company to make what amounted to a higher bid. Private label, Lazar, said has been “a bit tougher”. Moreover, Ralcorp today reported lower operating profits in the fourth quarter year-on-year.
ConAgra CFO John Gehring said the company did not want to go into what “did or didn’t happen a year ago” and said: “On shareholder value and what we think we can do with this combined business, we are very excited about the value it can create.”
Rodkin added: “This is an extremely compelling deal. Over many years, private label has grown faster than branded. Ralcorp clearly has leading positions, most of them number one, in attractive growth segments. Over the long term, Ralcorp has demonstrated really good organic growth. When you combine their strong marketplace positions and scale in private label with our consumer packaged good capabilities like innovation and category management, then you have got a very powerful story in a very fragmented private-label industry. The fastest-growing customers in the food industry are those that put the highest priority on private label or their own store brands.”
Private-label sales account for 18% of total packaged food sales in the US, according to data provided by ConAgra today and Rodkin insisted the company believed the category had further potential to grow.
“We believe very, very strongly from many different perspectives, whether it’s looking across the pond or over our northern border at developed economies that have much higher percentages of private-label sales and we see that continuing,” he said. “We see the customers that are the highest in terms of private-label penetration grow the fastest and, most importantly, this is a very, very fragmented industry where we believe the direction strategically custiomers want to go with their store brands is much more of a CPG approach and those are capabilities we’ve worked hard over the last years to develop and that’s going to be the big leverage that we’ve got.”
Shares in ConAgra were up 4.3% at $29.51 at 11:41 ET.
