Conagra Brands Inc. agreed to acquire Pinnacle Foods Inc. for $8.2 billion in cash and stock, adding Birds Eye frozen foods to the owner of the Healthy Choice brand. The purchase allows Conagra to expand its business in the frozen foods sector, according to the Wall Street Journal.
Conagra Chief Executive Sean Connolly has focused on revamping older brands like Banquet frozen meals and Reddi Wip dessert topping. The Pinnacle acquisition would add brands such as Duncan Hines, Earth Balance, Hawaiian Kettle Style Potato Chips and others to its lineup. The combined company would have total sales of about $11 billion, based on the companies’ latest fiscal years.
The deal values Pinnacle at $68 a share, a slim premium to the stock’s close Tuesday of $67.86 amid reports of a possible deal. Under the deal’s terms, Pinnacle shareholders will swap each share for $43.11 in cash and 0.6494 Conagra shares. In premarket trading, Conagra shares fell 7.1% to $35.50, while Pinnacle Foods declined 4.4% to $64.85.
Packaged-food companies have had to adjust to shifting eating and grocery-shopping habits by Americans, shepherded in by Millennials and the internet. Stalwart food brands no longer can consistently command higher prices from retailers.
Conagra’s Mr. Connolly has called out rival food companies for neglecting brands and letting bureaucracy impede innovation. Walking down the frozen-food aisle, “you’ll still find plenty of products that look like they’re left over from the 1980s and 1990s,” he said at a conference last month.
Last year, Conagra freshened up of three of its frozen brands: Healthy Choice, Marie Callender’s and Banquet. Healthy Choice, a diet brand launched in 1989, rolled out new microwavable meal bowls with trendy ingredients like edamame, kale and quinoa, and exotic flavors like Cuban pork and Korean beef.
Conagra’s success has contributed to growth in frozen foods, where traditional brands have found new popularity among health-conscious shoppers. Pinnacle shareholders will own 16% of the combined company. Both companies said they plan to maintain their quarterly dividends at current levels.
The $10.9 billion deal including debt will be financed with $3 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 $600 million of incremental cash proceeds.
The deal is expected to close by the end of 2018.