ConAgra Foods Inc is offloading its private-label unit to TreeHouse Foods Inc for $2.7 billion after difficulties turning the business around.
ConAgra acquired the Ralcorp private-label unit two years ago for $6.8 billion. However, the business failed to deliver anticipated profits and was heavily criticized by investors because of high integration costs, price concessions, and customer service problems.
Activist investor Jana Partners was at the forefront of pushing ConAgra to begin a sale process for the business.
The divestiture of its private label unit includes non-branded foods ranging from canned pasta to cereal, condiments, frozen foods, as well as 32 manufacturing sites across the United States and internationally.
The unit generated $3.6 billion in revenue for the twelve months ended on May 31.
The deal is expected to close in the first quarter of 2016. TreeHouse said that it expects the acquisition to help boost annual sales to about $7 billion and forecasts adjusted earnings of about $690 million before interest, taxes, depreciation and amortization.
JPMorgan analyst Ken Goldman said in a note: “Given how long the process seemed to take and that (TreeHouse) in the end perhaps was the sole negotiating partner, we are slightly relieved for (ConAgra’s) sake that the (selling price) was not lower,”
“Since our founding ten years ago, our strategy has been to drive **shareholder value by consolidating supply of private label brands,” Sam K. Reed, CEO TreeHouse Foods, said in a press release.
“The union of TreeHouse and ConAgra’s private brands business establishes an industry leader in customer brands and custom products with significant scale, scope and skill and enables us to extend our reach in the grocery store by over 10 shelf stable and refrigerated food categories,” he added.
** Shareholder value refers to how successful a company and its senior management have been in increasing the value of a company’s shares, i.e. making its shareholders richer.