). This morning the companies announced a definitive merger agreement valued at $6.8 billion, which includes the assumption of debt in the neighborhood of $1.9 billion at the end of June.
Ralcorp shareholders will receive $90 a share in cash, a premium of 28.2% to last night’s closing price. ConAgra will finance the deal from cash on hand, existing credit facilities, and new borrowing. The company also said that it would issue $350 million in new equity to maintain its investment grade credit rating. ConAgra will also continue to pay its $1 per share annual dividend.
The combined company will be the largest private-label packaged food business in the United States, with total private-label sales of $4.5 billion. When ConAgra pulled out last year, Ralcorp had announced a spin-off of its Post cereals into Post Holdings Inc. (NYSE: POST), and without the maker of Post Toasties and Grape-Nuts, the deal just did not seem good enough.
Last year’s deal worked out to $94 a share for Ralcorp without Post. And Ralcorp just cashed out its remaining 19.7% holding in Post in a tax-free disposition with a noncash loss $48.9 million.
Ralcorp’s stock has never traded above $90 except during last year’s courtship by ConAgra, so Ralcorp’s shareholders are getting a good deal. ConAgra becomes the top private-label food packaging firm in the U.S., the most profitable part of the food packaging business. Looks like a good deal for everyone.
Shares of Ralcorp are up 26.7% at $88.95 in premarket trading this morning, in a 52-week range of $59.28 to $89.86.
Shares of ConAgra are up 5.8% in the premarket, at $29.93 in a 52-week range of $23.64 to $28.80.