Are Pinnacle Foods Shareholders Getting Enough in the Buyout?

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Pinnacle Foods Inc. (NYSE: PF) shares dropped early on Wednesday after it was announced that the company would be acquired by Conagra Brands Inc. (NYSE: CAG). This will go down in a cash and stock deal valued at roughly $10.9 billion, including Pinnacle Foods’ outstanding net debt. The transaction is expected to close by the end of 2018.

Under the terms of the transaction, Pinnacle Foods shareholders will receive $43.11 per share in cash and 0.6494 shares of Conagra Brands common stock for each share of Pinnacle Foods held. The implied price of $68.00 per Pinnacle Foods share is based on the volume-weighted average price of Conagra Brands’ stock for the five days ended June 21, 2018.

With the implied value of $68 per share, the transaction reflects premiums of 8.5% and 17.5% compared to the 50- and 200-day moving averages of $62.65 and $57.86, respectively.

The transaction is expected to enhance Conagra Brands’ multiyear transformation plan and expand its presence and capabilities in its most strategic categories, including frozen foods and snacks. Based on both companies’ latest fiscal year results, pro forma net sales would have been approximately $11 billion.

Sean Connolly, president and CEO of Conagra Brands, commented:

The acquisition of Pinnacle Foods is an exciting next step for Conagra Brands. After three years of transformative work to create a pure-play, branded food company, we are well-positioned to accelerate the next wave of change. The addition of Pinnacle Foods’ leading brands in the attractive frozen foods and snacks categories will create a tremendous opportunity for us to further leverage our proven innovation approach, brand-building capabilities, and deep customer relationships. With greater scale across leading, iconic brands, an unwavering focus on driving profitable growth, and a strong balance sheet and cash flow, we are creating a tremendous platform to drive meaningful shareholder value.

Shares of Pinnacle Foods closed Tuesday at $67.85, with a consensus analyst price target of $66.94 and a 52-week trading range of $52.25 to $70.51. Following the announcement, the stock was down 3.5% at $65.50 in early trading indications Wednesday.

Conagra Brands closed Tuesday at $38.22 a share, with a consensus price target of $41.69 and a 52-week range of $32.16 to $39.43. Following the announcement, the stock was down 5% at $36.18 in early trading indications Wednesday.