In late 2012, ConAgra Foods Inc. (NYSE: CAG) paid $6.8 billion in cash and assumed debt for private-label food maker Ralcorp. Monday morning the company announced that it has sold the business to Treehouse Foods Inc. (NYSE: THS) for $2.7 billion in cash.
The private label division contributed about a quarter of ConAgra’s 2014 revenues, far less than the company had hoped for when it made the acquisition. This past summer, activist investor firm Jana Partners criticized ConAgra’s private label business and succeeded in obtaining two seats on the company’s expanded board. Jana owned about 7.2% of ConAgra’s outstanding shares at that time.
ConAgra had made the decision to get out of the private label business before Jana came knocking, but there’s nothing like some activist encouragement to focus management’s attention. The June announcement of Jana’s investment in ConAgra shook the stock out of the doldrums, boosting the stock more than 6% on the day. ConAgra took an impairment charge of $3.23 per share (around $1.4 billion) in its first fiscal quarter of 2016 related to the sale of the Ralcorp business. The company estimated that the full amount of the charge will be in a range of $1.8 billion and $2.1 billion.
While investors are cheered by the sale, they’re not ecstatic. Shares traded up about 1.6% late morning Monday, at $41.21 in a 52-week range of $33.45 to $45.49. The consensus price target on the stock is $45.00.