Under the terms of the deal – which is expected to close in the first quarter of 2016 - ConAgra will divest the vast majority of its private label operations, including 32 manufacturing facilities in the US, Canada and Italy, although it will retain certain operations* connected to its Consumer Foods business, said president and CEO Sean Connolly.
“The sale of our private label business marks another important milestone as we remake ConAgra Foods into a focused, higher-margin, more contemporary and higher-performing company,” added Connolly, who said the deal followed a sale process involving more than 35 potential buyers, “including both strategic buyers and financial sponsors”.
Deal establishes ‘industry leader in customer brands’
TreeHouse chairman and CEO Sam Reed, meanwhile, said the deal would “meaningfully expand” TreeHouse’s presence in private label dry and refrigerated grocery, noting that after it closes, ThreeHouse will have pro forma sales of nearly $7bn, adjusted EBITDA of c. $690m, plus more than 50 manufacturing facilities and 16,000+ employees.
"Since our founding ten years ago, our strategy has been to drive shareholder value by consolidating supply of private label brands,” he added.
“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.”
The cost of integrating the acquisition - coupled with the financing costs for the deal - would exceed contributions from the newly acquired business in year one, he added. However, supply chain and procurement synergies would “ramp up significantly” in years two and three, predicted Reed, who said TreeHouse expects to report earnings per fully diluted share of $0.64-$0.65 compared to $0.47 per fully diluted share in the third quarter on revenues up 0.4% to $799m.
About-turn for ConAgra Foods
ConAgra Foods has made significant changes since bringing on Sean Connolly as its new CEO in April, most notably announcing plans to divest Ralcorp less than three years after buying it. It has also unveiled plans to cut about 1,500 jobs, around 30% of its office-based workforce, and move its headquarters to from Omaha, Nebraska, to Chicago as part of a plan designed to deliver $300m in cost savings over the next three years.
Connolly, who said the firm had pumped too much time and money into the private label business, and was not seeing a good return, said M&A activity to reshape the portfolio at ConAgra - which recently acquired natural and organic frozen meal maker Blake’s All Natural Foods - was also on the cards.
Speaking on the firm’s second quarter earnings call on September 22, Connolly said ConAgra had relied too heavily on trade spending in the past and was now “clearly committed to a different approach”.
He added: “We want to build brand strength, we want to compete on dimensions other than price, we want to get our margins up, we want our brand health up, but we are going to pursue all that in a surgical way.”
*Canned pasta, cooking spray, peanut butter, pudding/gels, Gelit frozen pasta product offerings, plus the HK Anderson and Kangaroo brand equity, trademark and business portfolios.