Another CPG giant is born

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Another CPG giant is born

By Gina Acosta - 06/27/2018
A few weeks after Keurig snapped up Dr. Pepper, Conagra Brands is buying Pinnacle Foods for approximately $10.9 billion, including Pinnacle Foods' outstanding net debt.

Merger and acquisition activity in the consumer goods industry is intensifying once again with a big move from Conagra. 

A few weeks after Keurig snapped up Dr. Pepper, Conagra Brands is buying Pinnacle Foods for approximately $10.9 billion, including Pinnacle Foods' outstanding net debt.

Under the terms of the transaction, Pinnacle Foods shareholders will receive $43.11 per share in cash and 0.6494 shares of Conagra Brands common stock for each share of Pinnacle Foods held. 

The combination of two growing portfolios of iconic brands will serve as a catalyst to accelerate value creation for shareholders, the companies said. The merger of Conagra and Pinnacle would create the second-largest U.S. frozen food company behind Nestle.

"The acquisition of Pinnacle Foods is an exciting next step for Conagra Brands. After three years of transformative work to create a pure-play, branded food company, we are well-positioned to accelerate the next wave of change," said Sean Connolly, president and chief executive officer of Conagra Brands. "The addition of Pinnacle Foods' leading brands in the attractive frozen foods and snacks categories will create a tremendous opportunity for us to further leverage our proven innovation approach, brand-building capabilities, and deep customer relationships. With greater scale across leading, iconic brands, an unwavering focus on driving profitable growth, and a strong balance sheet and cash flow, we are creating a tremendous platform to drive meaningful shareholder value."

The transaction will enhance Conagra Brands' multi-year transformation plan and expand its presence and capabilities in its most strategic categories, including frozen foods and snacks. With annual net sales in excess of $3 billion, Pinnacle Foods' portfolio of frozen, refrigerated and shelf-stable products includes such well-known brands as Birds Eye, Duncan Hines, Earth Balance, EVOL, Erin's, Gardein, Glutino, Hawaiian Kettle Style Potato Chips, Hungry-Man, Log Cabin, Tim's Cascade Snacks, Udi's, Vlasic and Wish-Bone, among others. Based on both companies' latest fiscal year results, pro forma net sales would have been approximately $11 billion.

"Today's transaction provides Pinnacle Foods shareholders with substantial and immediate value, as well as the opportunity to participate in the significant upside potential of the combined company," said Pinnacle Foods chief executive officer Mark Clouse. "Because of our employees' incredible work, Pinnacle's total shareholder return is approximately 275 percent since our IPO, and today marks an important milestone in the company's journey. The portfolios and capabilities of both enterprises are impressive and complementary. We look forward to working through a seamless transition with the Conagra Brands team."

Retail Leader recently highlighted how the CPG world is ripe for M&A, between market dynamics and regulators who appear favorably disposed to approve deals. 

Under the terms of the agreement, each share of Pinnacle Foods common stock will be converted into the right to receive $43.11 per share in cash and 0.6494 shares of Conagra Brands common stock.

Conagra Brands has secured $9.0 billion in fully committed bridge financing from affiliates of Goldman Sachs Group, Inc. ("Goldman Sachs"). The $10.9 billion purchase price is expected to be financed with $3.0 billion of Conagra Brands equity issued to Pinnacle Foods shareholders and $7.9 billion in cash consideration funded with $7.3 billion of transaction debt and approximately $600 million of incremental cash proceeds from a public equity offering and/or divestitures. On a pro forma basis, Pinnacle Foods shareholders are expected to own approximately 16% of the combined company, assuming issuance of the incremental equity to the public.  Following the transaction, Conagra Brands' pro forma net debt-to-EBITDA ratio is expected to be approximately 5.0x. Conagra Brands is committed to maintaining a solid investment grade credit rating and targeting a debt-to-EBITDA ratio of 3.5x.

Conagra Brands intends to maintain its quarterly dividend at the current annual rate of $0.85 per share during fiscal 2019. In the future, it expects modest dividend increases while it focuses on deleveraging, subject to the approval of its board of directors. The company also plans to repurchase shares under its authorized program only at times and in amounts as is consistent with the prioritization of achieving its leverage targets.  

Pinnacle Foods will continue to pay its quarterly dividend at the current annual rate of $1.30 per share until the transaction is completed.

The transaction is expected to close by the end of calendar 2018, subject to the approval of Pinnacle Foods shareholders, the receipt of regulatory approvals and other customary closing conditions.