Ralcorp board faces class action lawsuit over refusal to engage with ConAgra
The action, filed by Ralcorp shareholder Jennifer Howard in St Louis, Missouri, was prompted by the “self-interested and unreasonable refusal” of Ralcorp’s board to “enter into any dialogue in response to multiple offers to acquire the company … at prices well above Ralcorp’s market price."
Howard, who is represented by Mark Goldenberg at law firm Goldenberg Heller Antognoli, alleges that Ralcorp's board had "repeatedly and unreasonably refused to even discuss a potential transaction with ConAgra" and instead "erected barriers to any unsolicited takeover, and hastily and belatedly created and introduced its own plan to break up the company".
Rejection deprives shareholders of right to receive maximum value for their shares
ConAgra is not a party in the action, which seeks to determine whether Ralcorp shareholders are entitled to compensation as a result of the defendants’ refusal to negotiate.
By refusing to talk to a “motivated and well-capitalized strategic buyer to potentially realize immediate shareholder value”, Ralcorp’s board had not acted in its shareholders’ best interests, claims Howard.
“By failing to properly pursue these offers, defendants are depriving the plaintiff and the class of the right to receive maximum value for their shares.”
Analyst: Post Foods spin-off could destroy shareholder value
Morningstar analyst Erin Lash told FoodNavigator-USA she could not comment on the action beyond noting that such suits “aren’t uncommon”.
However, ConAgra’s offer was attractive, she acknowledged. “Given its fiduciary duty to maximize shareholder value, we expect the board to consider any strategic offers.
“From our perspective, ConAgra's offe, which represented a 22% premium to our fair value estimate and about eight times our fiscal 2012 EBITDA forecast, was attractive for Ralcorp and its shareholders.
“Further, the intended spin-off of Ralcorp’s Post [cereals] brand is likely to prove to be a value-destroying investment for Ralcorp's shareholders. For shareholders to break even on the deal, Post would need to garner 9.5 times adjusted EBITDA, which seems rich for a third-tier brand in a highly competitive category.”
She added: “We also aren't convinced that Post's competitive positioning will improve as a stand-alone operation.
“Even though Ralcorp has not backed down from its efforts to realize $80-100m in cost efficiencies between 2012 and 2014, we believe the spin-off of the branded Post business will limit the firm's long-term profitability profile, as private-label sales are inherently lower-margin for consumer product firms.”
Ralcorp: Post Foods spin-off will unlock significant value for shareholders
A Ralcorp spokesman declined to comment on the class action, and reiterated the board’s belief that rejecting ConAgra’s latest $94-a-share cash offer was in shareholders’ best interests.
In a statement issued earlier this week as a final deadline for talking to ConAgra expired, Ralcorp chairman William Stiritz said separating Post Foods from Ralcorp would “unlock significant value for shareholders”.
He added: “As independent companies, Ralcorp and Post Foods will be better positioned to focus on strategies specific to each of their particular businesses by operating as pure play independent public companies with distinct financial profiles, capital structures appropriate for their respective businesses and their own equity currencies.
“Ralcorp expects that the separation will allow it to enhance its position as a growth through acquisition private brand leader with a diverse product, customer and input array, while operating low-cost, efficient and safe manufacturing facilities.”
ConAgra: Pipeline of alternatives
ConAgra boss Gary Rodkin said he would pursue other acquisition opportunities instead, prompting many analysts to speculate over a possible bid for private label specialist TreeHouse Foods.
He said: “I want to be very clear that we will pursue other avenues for growth. That's our strategy. We have a pipeline of alternatives that we've been assessing. We remain committed to growth organically and through smart acquisitions, and we're working diligently on both.”
Is TreeHouse next on ConAgra’s shopping list?
Said Lash at Morningstar: “Despite Ralcorp's refusal to come to the table … we doubt that ConAgra's interest in building out its private-label business has subsided. We would not be surprised to see the firm pursue other players in the sector, which could include one of Ralcorp's rivals like TreeHouse.
“We've long believed that ConAgra lags its peers, as its portfolio consists of second- and third-tier brands that lack brand equity and pricing power.
“By extending its portfolio beyond its lackluster brands, ConAgra may be able to benefit as consumers opt for lower-priced products and retailers increasingly tout value offerings.”
