Conagra Brands has approached packaged food giant, Pinnacle Foods Inc. with intent to initiate a takeover, sources have revealed to Reuters.
If a deal between the two companies comes to pass, it might not be too big of a surprise to industry analysts, including David Palmer with RBC Capital Markets who told the Omaha World Herald in October 2016 that he predicted that Pinnacle Foods would be a likely target for acquisition by Conagra based on Conagra’s financial position, and the potential for significant savings generated by the increased scale of the combined companies.
New Jersey-based Pinnacle is the producer of popular food brands including Duncan Hines, Birds Eye, Aunt Jemima, and Vlasic pickles. The company has recently made moves to expand its share in the growing health and wellness segments and the natural and organic food space with the acquisition of Boulder Brands in December 2015 for $975 million.
Today Pinnacle carries a market value of $7.2 billion – a huge premium over the value of $4.3 in 2014 when the company was expected to be acquired by Hillshire Brands before Hillshire withdrew from the deal when it agreed to be taken over by Tyson Foods for $7.7 billion.
Since the failed deal with Hillshire in 2014, Pinnacle Foods’ sales have climbed from $2.59 billion to $3.13 billion last year, while gross profits jumped from $188,000 in 2014 to $916,000 in 2016, according to FoodBev.
A Busy Week
This move by Conagra comes only two days after it was announced that the company agreed to divest the iconic Wesson Oil brand to JM Smucker in an all-cash deal valued at $285 million – a sale that is the latest reflection of Conagra’s continuing transformation since Sean Connolly assumed the role of CEO in 2015.
Under Conolly’s leadership, Conagra has undertaken a strategic plan to reinvigorate its portfolio to better align with consumer demands and reflect a more modern lineup. Toward this end, Conagra divested its Ralcorp private label business to TreeHouse Foods in the fourth quarter of 2015 for $2.7 billion; sold ingredient sourcing and distribution company JM Swank to private equity firm Platinum Equity in June 2016; and sold flavors and seasoning business Spicetec to Givaudan in May 2016. Meanwhile, the company acquired salsa and sauce manufacturer Frontera Foods in September of last year.
“We continue to reshape our portfolio and focus our resources on priorities that support Conagra’s business strategy and drive value creation for shareholders,” said Sean Connolly, president and chief executive officer of Conagra Brands, in a company statement. “We believe The J.M. Smucker Company will be a terrific steward of the Wesson brand.”
The strategy appears to be working for Conagra, as Reuters reports that the company’s third quarter profits announced in March exceeded expectations as the company continues to eliminate lower-margin offerings from its product lines.
To acquire Pinnacle Foods would extend this growth strategy for Conagra, reports Food Dive. As CPG companies remain under pressure amid rapidly shifting consumer demands, a consolidation of this magnitude could improve the standing of both companies. Additionally, Connolly and the leadership team at Conagra are very familiar with Pinnacle’s business noted Food Dive, as Connolly was the CEO of Hillshire Brands in 2014 when Hillshire was on the verge of acquiring the company; indicating that integration strategies may very like already be developed.
-Lynda Kiernan
Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at lkiernan@globalaginvesting.com
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