Is Conagra-Pinnacle Deal Off Table, or On Back Burner?

Pinnacle Foods (PF) shares rose by 7.1% in value on May 31, as Reuters reported that Conagra Brands (CAG) approached the Parsippany, New Jersey, USA-based company with a buyout proposal. Credit Suisse analyst Robert Moskow speculated that Conagra could be willing to pay a significant premium to land Pinnacle Foods. In his opinion, a deal would lead to "enormous" synergies over time.

On June 2, CNBC reported that “people familiar with the matter” said that talks between the parties ended as “Pinnacle's expectations far exceeded what Conagra might have been willing to pay.”

pinnacle logoWith market capitalization of $7.2 billion, diversified foods maker and marketer Pinnacle’s frozen retail brands include Birds Eye vegetables, Mrs. Paul’s and Van de Kamp’s value-added fish, Hungry Man ready meals, Celeste pizza, Lender’s bagels, EVOL burritos, snacks and entrees, and Gardein plant-based protein.

Among frozen food brands in the retail products portfolio of Chicago, Illinois-headquartered Conagra, which has a market cap of $16.2 billion, are Healthy Choice, Banquet, Marie Callender’s and Blake’s. Last year the company spun off its $6.9 billion frozen potato unit, Lamb Weston Holdings Inc., which largely does business in the foodservice sector.

Assuming that the initial Reuters report was correct, this would mark the second approach led by Sean Connolly to acquire Pinnacle. The Conagra president and ceo made a buyout effort in 2014, when he was at the helm of Hillshire Brands. That $4.3 billion deal was canceled after Hillshire opted to be acquired by Tyson Foods for $7.7 billion.

A Conagra Brands Inc. acquisition of Pinnacle Foods Inc. would make strategic sense, and create a more than $4 billion competitor in frozen foods, according to J.P. Morgan analyst Ken Goldman. He calculated that a union of the two companies would create a powerhouse with a 12% dollar share across all frozen categories and a #2 branded share position.

“We merely point out that a) both PF and CAG have scale in frozen, b) CAG CEO Sean Connolly has already almost bought Pinnacle once in his career, c) Pinnacle’s board already agreed to [sell the company] once, d) we don’t see any meaningful anti-trust issues, and e) Conagra has said [in the past] that additional M&A likely will be an important part of its growth,” said Goldman.