The transaction – expected to be completed in the fall of 2016 – will be structured as a spin-off of the Lamb Weston business, tax-free to the company and its shareholders, leaving ConAgra Foods shareholders with shares of both independent companies.
President and CEO Sean Connolly said the deal was the “best way to drive shareholder value” and would “enable each company to sharpen its strategic focus and provide flexibility to capitalize on the unique growth opportunities in its respective market”.
The two businesses operate in “distinct markets and possess unique and compelling growth prospects and investment requirements”, said the company, which said the move would enable investors to value the two companies “based on their particular operational and financial characteristics and invest accordingly”.
Conagra Brands (led by CEO Sean Connolly and based in Chicago): This new segment – primarily comprised of the current consumer foods operation (which generated revenues of c.$7.2bn in fiscal 2015) – includes Marie Callender’s, Hunt’s, RO*TEL, Reddi-wip, Slim Jim, PAM, Chef Boyardee, Orville Redenbacher’s, P.F. Chang’s and Healthy Choice.
It will also include the traditional foodservice business (sales of branded products to foodservice companies), Spicetec Flavors & Seasonings and JM Swank, as well as certain private label operations, which collectively generate c.$1.8bn in revenues. Conagra Brands is also expected to retain ConAgra Foods’ stake in the Ardent Mills flour milling joint venture.
Lamb Weston: This portfolio will consist of frozen potato, sweet potato, appetizer and other vegetable products, as well as a continued presence in retail frozen products under licensed brands and private brands. For fiscal 2015, Lamb Weston generated revenues of c. $2.9bn.
Corporate re-engineering
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.”