CHICAGO — Just a few days after announcing it has signed an agreement to sell its Wesson il brand to The JM Smucker Co. for $285 million, Conagra Brands Inc. is back in the news with reports the company has approached Pinnacle Foods about an acquisition deal. The reports pushed the share prices of Pinnacle and Conagra up 6 percent and 4 percent in early trading on June 1.
According to Reuters, Conagra’s approach to acquire Pinnacle Foods took place in the past few weeks. It would not be the first time that Pinnacle has been an acquisition target. The Parsippany, NJ-based packaged foods maker terminated its merger agreement with the Hillshire Brands Co. back in mid-2014 after Hillshire agreed to be acquired by Tyson Foods Inc. At that time, Hillshire was led by Sean Connolly, who currently is the CEO of Conagra.
Pinnacle Foods, meanwhile, has made a push to build out its portfolio of healthier products. The company last year acquired Boulder Brands for $975 million.
|Robert Moskow, research analyst with Credit Suisse|
In a May 31 research report, Robert Moskow, research analyst with Credit Suisse, said a potential acquisition “would not come as much of a surprise.”
“Conagra CEO Sean Connolly and his team have telegraphed their strong desire to expand the company’s scale through acquisitions and consolidate the fragmented frozen foods category,” Moskow said. “Connolly made a bid for Pinnacle once before when he was CEO of Hillshire Brands.”
Moskow thinks Conagra would be willing to pay a premium to acquire Pinnacle.
“Conagra has created significant shareholder value over the past two years by improving the company’s stodgy corporate culture, streamlining the portfolio, reducing overhead costs, and walking away from money-losing promotional deals and skus (stock-keeping units),” he said. “But with the company now coming to the tail end of the cost savings from those strategies, and the core Conagra business declining at a rate of 4 percent, the company needs to do something more aggressive to improve the quality of its portfolio longer term.”
Moskow said Pinnacle represents “a uniquely attractive opportunity” for Conagra to boost its growth rate and create significant synergies.
“Pinnacle’s board is not entrenched, but it would demand a big premium to sell the business,” he said. “In the midst of weakening packaged foods industry environment, Pinnacle has generated enormous shareholder value by sticking to its portfolio strategy, making smart acquisitions, and introducing resonant new products that merit premium prices. It is well-positioned to capitalize on growing consumer demand for healthier foods with brands like Birds Eye vegetables, Gardein frozen meals, and Evol frozen meals. It is also in the early stages of a multi-year plan to boost its gross margin. To get a deal done, Conagra probably would have to offer seats on the board and other assurances regarding job security.”