Conagra-Pinnacle Union Creates Frozen Food Powerhouse

Chicago, Illinois-headquartered Conagra Brands has reached a definitive agreement to acquire all outstanding shares of Parsippany, New Jersey-based Pinnacle Foods in a cash and stock deal valued at approximately $10.9 billion, including Pinnacle’s outstanding net debt.

The transaction, which is expected to close by the end of this calendar year, will significantly boost Conagra’s already significant presence in the United States retail frozen food sector. It would add household brand names including Birds Eye vegetables, Van de Kamp’s and Mrs. Paul’s value-added seafood dishes, Hungry Man ready meals, Lender’s bagels, Celeste pizza and the Gardein line vegetarian products to a portfolio that currently boasts Healthy Choice, Banquet and Marie Callender’s ready meals and other offerings.

pinnacle logo 150Under the terms of the purchase agreement, Pinnacle shareholders would receive $43.11 per share in cash and 0.6494 shares of Conagra Brands common stock for each share of Pinnacle Foods held. The implied price of $68 per Pinnacle Foods share is based on the volume-weighted average price of Conagra stock for the five-day period that ended on June 21, 2018. The purchase price reflects an adjusted EBITDA multiple of 15.8x, based on Pinnacle’s estimated fiscal year 2018 results excluding synergies, and 12.1x adjusted EBITDA including run-rate cost synergies.

With annual net sales in excess of $3 billion, Pinnacle Foods' portfolio of non-frozen products includes such well-known brands as Duncan Hines, Hawaiian Kettle Style Potato Chips, Log Cabin, Tim's Cascade Snacks, Vlasic and Wish-Bone, among others. Based on both companies' latest fiscal year results, pro forma net sales would have been approximately $11 billion.

"The acquisition of Pinnacle Foods is an exciting next step for us,” said Sean Connolly, president and chief executive officer of 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. The addition of Pinnacle’s 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."

The $68 per share offer is priced 23% above Pinnacle’s closing level on April 19, when activist investor hedge fund Jana Partners accumulated a 9.5% stake in the company and began promoting a sale among fellow stockholders.

pinnacle birds eye gardein“Conagra’s quarterly results [posted on June 27] showed why the company is doubling down on frozen food with the Pinnacle deal. Conagra’s refrigerated and frozen segment, with brands like Banquet and Healthy Choice, was the fastest-growing,” reported the Bloomberg financial news outlet in New York.

Quoting a note to investors from Stifel analyst Christopher Growe, it added: “The long-awaited deal finally comes together. “The nearly $11 billion acquisition creates a powerhouse in the frozen food aisle” though it is “a bit surprising” that the multiple for the deal was lower than recent acquisitions in the food industry, and the $68-a-share price came below his expectation of $75.”

Not questioning the price in any way, shape or form was Pinnacle Foods CEO Mark Clouse, who commented: "This transaction provides our shareholders with substantial and immediate value, as well as the opportunity to participate in the significant upside potential of the combined company…Total shareholder return is approximately 275% since our IPO, and today (June 27) 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."