Branded and private label food giant ConAgra is making a $4.9 billion offer to buy private label powerhouse Ralcorp, reports National Provisioner sister publication PLBuyer. Ralcorp announced on Sunday that it had received and rejected an unsolicited takeover bid. Wall Street speculation centered around ConAgra as that bidder.

The latest ConAgra bid is for $86 a share. Ralcorp stock last week was trading in the $72-a-share range but spiked higher Friday on the takeover rumors. The deal would combine ConAgra’s $850 million-a-year in private label sales business with Ralcorp to create a company with $4 billion-a-year in private label sales, meaning about 25 percent of ConAgra total sales would be in the private label area.

“The proposed transaction would expand ConAgra Foods’ presence in the fast-growing private label segment and create the No. 3 U.S. packaged food company, focusing on delivering value to customers across both branded and private label,” ConAgra said in its statement.

“We believe this all-cash proposal is highly attractive to Ralcrop’s shareholders and a transformational growth opportunity for both companies,” said Gary Rodkin, ConAgra foods’ CEO.

ConAgra has been interested in Ralcorp since at least February of this year. The Omaha, Neb.-based processor revealed that it originally placed a phone call on Feb. 23 to arrange a meeting to discuss a combination of the two companies. It then sent a written proposal on March 22. Ralcorp rejected the proposition on April 1 via a phone call and sent a written rejection on May 1, before issuing the statement about the unsolicited offer.

ConAgra Foods’ takeover attempt of Ralcorp Holdings Inc. could trigger other deals among private label suppliers, analysts tell PLBuyer’s eReport. A higher competing bid for Ralcorp also is not out of the question.

“There is usually a flurry of proposed activity for other potential mergers and acquisition activity once a deal closes,” says Neil Stern, senior partner at the Chicago, Ill.-based research firm McMillian Doolittle LLP. “The trend towards consolidation has been very clear over the past decade -- as retailers get bigger, suppliers are also becoming larger and more global to efficiently serve the market. It is possible that we will see similar activity in the private label manufacturer market as well as they also try to develop scale.”

The offer comes as rising commodity prices grip the industry. Ralcorp has decreased its spending in an effort to increase margins over the last year, says Erin Lash, equity analyst at Chicago-based investment research firm Morningstar.

Ralcorp has a potential market value of $9 billion, based on multiples of earnings paid for other food companies, Lash estimates. That value is slightly higher than ConAgra’s bid, leaving room for competing bidders to emerge.

“Private equity firm Apollo is also rumored to be pursuing Ralcorp, in line with our thinking that financial buyers might also be interested in the firm, given its reasonable size, moderate leverage, and the potential to improve its free cash flow generation,” Lash says.

If the deal moves ahead, Con Agra would become the third-largest packaged food company in the United States.

Source: PLBuyer