BRIEF

Conagra buying Pinnacle Foods for $10.9B in cash and stock

AUTHOR

Christopher Doering@cdoering

PUBLISHED

June 27, 2018

Dive Brief:

• Conagra Brands is buying Pinnacle Foods for about $10.9 billion in cash and stock, the maker of Healthy Choice and Marie Callender’s said in a statement. Pinnacle Foods’ shareholders will receive about $68 per share, including $43.11 per share in cash and 0.6494 shares of Conagra common stock for each share of Pinnacle Foods they hold.
• Conagra said the transaction will enhance the company’s presence in frozen foods and snacks. The food giant will add well-known brands such as Birds Eye, Duncan Hines, Hungry-Man, Log Cabin, Vlasic and Wish-Bone to its portfolio.
• “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, said in a statement. “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.”

Dive Insight:

The combination of Pinnacle and Conagra has long been speculated as a partnership that would make sense on multiple levels. The two food giants have reportedly been in on-again, off-again talks for a few years.

But talks failed to gain traction until April when Jana Partners, the activist hedge fund that pushed for changes at Whole Foods before the grocer was sold to Amazon for $13.7 billion last year, took a 9.1% stake in Pinnacle. Jana vowed to engage in discussions with Pinnacle Foods’ board “regarding value creation measures” that could include “a sale or other consolidation opportunities.” With the Conagra-Pinnacle merger, it appears Jana was instrumental in helping foster another major deal in the food sector.

The food industry as a whole has been struggling as consumers move toward snacks and better-for-you products. Big Food companies that once dominated the shopping cart have watched as trendy upstarts focusing on clean labels and less processed items command an ever-growing share of retail space, pressuring sales and forcing them to look outside for ways to stoke growth.

The nearly $11 billion purchase by Conagra is the first major transaction in the food space since Campbell Soup announced in December it would acquire snack maker Snyder’s Lance for nearly $5 billion.  That same day, Hershey snapped up Amplify Snack Brands, parent company of SkinnyPop, for $1.6 billion.

Executives attending the annual Consumer Analyst Group of New York conference in Florida in February all said they are looking to deal-making as part of a long-term growth strategy. Kraft Heinz has been rumored to be interested in making a big deal of its own, with reports recently that it was interested in beleaguered soup giant Campbell Soup — a transaction subsequently downplayed by analysts.

“This is a big part of our strategy and will continue to be,” Connolly told analysts at the conference. “M&A provides upside. When it comes to acquisitions, the key, of course, is [finding] that proper balance between being aggressive and being disciplined.”

After years of shedding operations such as its private label business and frozen potato company Lamb Weston to focus on its core brands, the strategy at Conagra has been to use acquisitions to bulk up in areas in which it already has a presence — and the purchase of Pinnacle is no different. Last year, it purchased the makers of Duke’s meat snacks, Bigs sunflower seeds and Angie’s Boomchickapop, brands that complement its existing line of Slim Jim, David Seeds as well as Orville Redenbacher’s and Act II.

​Pinnacle has a large presence in frozen, with well-known brands that include Hungry-Man, Evol, Van de Kamp’s, and Mrs. Paul’s. Conagra will fold these brands into its frozen portfolio that has Banquet, Healthy Choice and Marie Callender’s. The combination of Conagra and Pinnacle creates a company that would be the second-largest U.S. frozen foods company behind Nestlé.

Until a few years ago, frozen was widely viewed as outdated and ripe for an overhaul as shoppers gravitated toward fresher produce. But Big Food companies have overhauled their frozen brands to make them more snack friendly, incorporated more premium ingredients and trendy flavors, and updated the often antiquated packaging. Brian Todd, president of the Food Institute, which tracks mergers and acquisitions in the food space, said these changes ushered in the long-discussed deal.

“The synergies in both companies’ frozen food businesses including Birds Eye and Healthy Choice make this a logical move as the frozen aisle is in the midst of a resurgence,” he said in an email to Food Dive. “The convenience and more healthy offerings in this segment have made it more appealing to millennials and other consumers.”

Conagra has given new life to some of its frozen brands like Banquet and Healthy Choice by refreshing packaging, making products that cater to the on-the-go consumer craving protein and introducing popular new flavors. It would not be a surprise to see Conagra conduct a deep dive of the new brands it is acquiring from Pinnacle in an effort to rejuvenate them and make them more friendly to today’s rapidly changing consumer palate.

This transaction is undoubtedly the biggest in the food and grocery space since last year’s Whole Foods deal. But as the shift in how people eat and drink, where they do it and what they look for in these items continues, it’s certainly not going to be the last.