ConAgra’s short-lived ownership of Ralcorp’s private label food business is coming to an end.
TreeHouse Foods, one of the country’s largest private label food makers, announced Monday that it’s buying most of ConAgra Foods’ private label business for $2.7 billion.
The purchase price is significantly lower than the $5 billion ConAgra paid in January 2013 to acquire St. Louis-based Ralcorp, a maker of grocery store brand pasta, cereal and snacks. Including debt, ConAgra’s purchase price less than three years ago was $6.8 billion.
ConAgra sought to unload Ralcorp after the private label business struggled in the face of manufacturing issues and poor customer satisfaction. Activist investor Jana Partners pressured ConAgra to put the unit up for sale this summer amid disappointing financial results. In its first quarter, ConAgra reported a loss of $1.2 billion.
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Over the past two years, ConAgra moved many back-office functions including accounting and finance from St. Louis to Omaha, Neb., leaving about 320 employees in downtown St. Louis. Most of the Ralcorp jobs that remain in St. Louis are management, sales and marketing.
TreeHouse CEO Sam Reed told the Post-Dispatch that the company plans to keep the St. Louis office open. “We intend to make St. Louis a key administrative center for the company,” Reed said.
TreeHouse has hired former Ralcorp CEO Kevin Hunt as a senior adviser to assist in integrating the business, and Hunt lives in the St. Louis region.
“I’ve known Ralcorp in the old days, and we know the experience and capabilities there are things that we want to use to our advantage and keep a significant presence there,” Reed said.
Oak Brook, Ill.-based TreeHouse was founded in 2005 as a spinoff of Dean Foods Co., and has grown through a dozen acquisitions over the past decade.
TreeHouse, the country’s largest private label maker of salad dressings and nondairy powdered creamer, said it plans to close on the acquisition of ConAgra’s private label business in the first quarter of 2016. The private brands business TreeHouse is buying had $3.6 billion in sales for the 12 months that ended May 31, and the acquisition will boost TreeHouse’s annual revenue to nearly $7 billion.
TreeHouse executives said the company plans to invest in product innovation in the private label business it’s buying.
“That innovation has not taken place as it should have,” Dennis Riordan, TreeHouse executive vice president and chief financial officer, said in an analysts’ call Monday.
Riordan was named interim president and chief operating officer of the Ralcorp unit. Riordan cited the removal of artificial flavorings in cereal as one opportunity for TreeHouse to reinvigorate Ralcorp’s product portfolio.
In a recent analyst report, SunTrust Robinson Humphrey managing director Bill Chappell said TreeHouse could achieve $100 million in synergies from the acquisition.
The combination “would be highly complementary with limited product overlap,” he wrote in the note, adding that TreeHouse “has a solid management team with experience in growing a product’s market share and successfully consolidating acquisitions into the company.”
TreeHouse executives said ConAgra’s private label business will be a better fit with a company focused on private label foods. ConAgra’s branded products include Chef Boyardee, Slim Jim and Bertolli.
“We understand private label,” Reed said. “We know there are far greater opportunities than are currently being realized.”
TreeHouse said it is entering into a shared services agreement with ConAgra to provide some IT, billing and collections operations for up to two years as it integrates the business.
Ralcorp was once part of Ralston Purina, which traces its founding in St. Louis to 1894. In 1994, Ralston spun off its cereal and other grocery items as a separate company, named Ralcorp. Before it was acquired by ConAgra, Ralcorp went on a buying spree, acquiring multiple companies, including American Italian Pasta Co. in 2010 for $1.2 billion.
In February 2012, Ralcorp spun off its branded products business, which includes Grape-Nuts and Honey Bunches of Oats cereal, as Post Holdings, which remains locally based. Brentwood-based Post Holdings was mentioned as a possible suitor to acquire Ralcorp, before TreeHouse emerged as the winning bidder.
ConAgra shares rose 36 cents, or nearly 1 percent, to close at $40.91. TreeHouse Foods fell $4.80, or 5.6 percent, to close at $80.84.
