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Last Update: 27-Nov-12 08:24 ET
RalCorp (RAH) and Conagra Foods (CAG) both show strength following news that CAG will acquire RAH
Ralcorp Holdings (RAH $88.81 +18.60) and ConAgra Foods (CAG $29.93 +1.64) announced that the boards of directors of both companies have unanimously approved a definitive agreement under which CAG will acquire RAH. Under the terms of the agreement, Ralcorp shareholders will receive $90.00 per share in cash for each outstanding share of common stock held, representing a 28.2% premium to the closing price of Ralcorp's common stock on November 26, 2012, and a 24.9% premium to the average closing price of Ralcorp's common stock for the 30 trading days ending November 26, 2012. The transaction is valued at approximately $6.8 billion, including the assumption of debt. ConAgra Foods expects the transaction to provide attractive sales and EPS growth over time. Because this transaction is expected to close by March 31, 2013, management expects it to have a modest benefit on fiscal 2013 financial results and will quantify that benefit in the coming months. Excluding any benefit from this transaction, ConAgra Foods' expectations for fiscal 2013 fully diluted EPS remain unchanged (reaffirms prior guidance) at $2.03 to $2.06 vs $2.06 Capital IQ consensus, adjusted for items impacting comparability. ConAgra Foods will provide additional details regarding the favorable impact of this transaction on its financial outlook for fiscal years 2013 and 2014, as well as its favorable impact on the company's long-term financial algorithm, in due course as integration plans, the pace of expected synergies, and the financing components of the transaction are finalized. ConAgra Foods intends to use its strong infrastructure and productivity capabilities to drive significant cost synergies from this transaction, primarily in the areas of supply chain and procurement efficiencies. It expects to achieve approximately $225 million of cost synergies on an annual basis by the fourth full fiscal year after closing. The acquisition of Ralcorp is expected to be financed primarily with cash on hand, existing credit facilities and new borrowings, for which ConAgra Foods has received a commitment letter from BofA Merrill Lynch. The company also reported fourth quarter earnings of $0.92 per share, excluding acquisition-related amortization, $0.06 better than the Capital IQ consensus of $0.86, while revenues rose 7.8% year/year to $1.07 billion versus the $1.1 billion consensus.
