The stock of Bob Evans Farms (BOBE 72.93) has acted more like a FANG stock this year than a stodgy food stock. It is up 37% year-to-date and it is slated to pad that gain today after Post Holdings (POST 85.84) announced a deal to acquire Bob Evans Farms for $77.00 per share.
The equity value of the transaction is approximately $1.5 billion and it translates into a 15% premium on the 30-day volume weighted average price for BOBE. Relative to Monday's closing price for BOBE, it is a more modest 5.6% premium.
The appeal for Post Holdings of buying Bob Evans Farms is the opportunity it creates to increase its presence in higher-growth categories of the packaged food market and to occupy a leading position in the higher-growth perimeter of the food store.
Bob Evans produces and distributes refrigerated potato, pasta and vegetable-based side dishes, pork sausage and other convenience items under the Bob Evans, Owens, Country Creek and Pineland Farms brands. It also manufactures and sells similar products to foodservice customers, which accounts for about 35% of its volume. The company sold its 523 Bob Evans restaurants in April 2017.
Post Holdings is one of the largest packaged food companies in North America, recording $5.08 billion in sales in 2016 with a concentration in center-of-the-store offerings. The acquisition of Bob Evans Farms, then, should be a nice complement to its existing business that helps Post Holdings increase its share of shelf space in food stores.
The addition of Bob Evans Farms is expected to contribute approximately $107 million of adjusted EBITDA on an annual basis before the realization of cost synergies, which Post estimates to be approximately $25 million annually by the third fiscal year post-closing. Additionally, this transaction is expected to be immediately accretive to Post's top-line growth, adjusted EBITDA margins, and free cash flow.
The Boards of Directors of both companies have approved the deal. Pending the necessary approvals, the acquisition is anticipated to be completed in the first calendar quarter of 2018.