Ralcorp Holdings’ senior directors today (21 June) defended the US food group’s plan to buy pasta supplier American Italian Pasta Co. amid questions over how it could grow the business.
After announcing Ralcorp’s agreement to buy AIPC for US$1.2bn, the company outlined to analysts the growth in the US pasta category. It said the US pasta sector had seen sales volumes rise by just over 2% in 2009 and dollar sales inch up by less than 1%.
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However, co-CEO and president Kevin Hunt said the deal was a “compelling growth opportunity” for the private-label food group, which also owns cereal brand Post.
“Within the category, private label continues to grow share and that’s clearly a growth opportunity. They also have some quite strong regional brands that have got legs. They have a very strong new product pipeline, much of which is oriented around a health and wellness positioning,” Hunt said.
Hunt dismissed concerns that, once the US economy recovers, consumers could switch from pasta to other meals or start to eat out more regularly.
“If you look at three to four to five years before the economy had its issues, the pasta category was demonstrating good growth,” Hunt said. “We can all try and guess how the consumer is going to react [once the economy recovers] but we think it is a good, strong, healthy category.”
However, he added: “We’re not looking for 10-15% growth … we just think the dynamics are very good.”
Hunt, meanwhile, suggested that the acquisition of AIPC, struck for $53 a share, or a 27% premium of the price of the pasta firm’s stock when trading closed on Friday, could give Ralcorp a “platform” for “add-on” acquisitions.
The Ralcorp management team insisted the company could generate synergies from buying AIPC but said the pasta firm would operate independently, much in the same way as the Post cereals business acquired from Kraft Foods in 2008.
However, Ralcorp’s management also refused to be drawn on the amount of synergies in dollars it expected from buying AIPC.
Ralcorp’s shares were down 7.1% at $57.73 at 13:11 ET this afternoon.
