Conagra Brands to acquire Pinnacle Foods for $10.9B in cash and stock
Conagra Brands (CAG) and Pinnacle Foods (PF) announced that their boards of directors have unanimously approved a definitive agreement under which Conagra Brands will acquire all outstanding shares of Pinnacle Foods in a cash and stock transaction valued at approximately $10.9B, including Pinnacle Foods’ outstanding net debt.
Under the terms of the transaction, Pinnacle Foods shareholders will receive $43.11 per share in cash and 0.6494 shares of Conagra Brands common stock for each share of Pinnacle Foods held.
The implied price of $68.00 per Pinnacle Foods share is based on the volume-weighted average price of Conagra Brands’ stock for the five days ended June 21, 2018.
The purchase price reflects an adjusted EBITDA multiple of 15.8x, based on Pinnacle Foods’ estimated fiscal year 2018 results excluding synergies, and 12.1x adjusted EBITDA including run-rate cost synergies.
The combination of two growing portfolios of iconic brands will serve as a catalyst to accelerate value creation for shareholders.
The transaction will enhance Conagra Brands’ multi-year transformation plan and expand its presence and capabilities in its most strategic categories, including frozen foods and snacks.
With annual net sales in excess of $3B, Pinnacle Foods’ portfolio of frozen, refrigerated and shelf-stable products includes such well-known brands as Birds Eye, Duncan Hines, Earth Balance, EVOL, Erin’s, Gardein, Glutino, Hawaiian Kettle Style Potato Chips, Hungry-Man, Log Cabin, Tim’s Cascade Snacks, Udi’s, Vlasic and Wish-Bone, among others.
Based on both companies’ latest fiscal year results, pro forma net sales would have been approximately $11B.
Under the terms of the agreement, each share of Pinnacle Foods common stock will be converted into the right to receive $43.11 per share in cash and 0.6494 shares of Conagra Brands common stock.
Conagra Brands has secured $9B in fully committed bridge financing from affiliates of Goldman Sachs Group (GS).
The $10.9B purchase price is expected to be financed with $3B of Conagra Brands equity issued to Pinnacle Foods shareholders and $7.9B in cash consideration funded with $7.3B of transaction debt and approximately $600M of incremental cash proceeds from a public equity offering and/or divestitures.
On a pro forma basis, Pinnacle Foods shareholders are expected to own approximately 16% of the combined company, assuming issuance of the incremental equity to the public.
Following the transaction, Conagra Brands’ pro forma net debt-to-EBITDA ratio is expected to be approximately 5.0x. Conagra Brands is committed to maintaining a solid investment grade credit rating and targeting a debt-to-EBITDA ratio of 3.5x.
Conagra Brands intends to maintain its quarterly dividend at the current annual rate of $0.85 per share during fiscal 2019.
In the future, it expects modest dividend increases while it focuses on deleveraging, subject to the approval of its board of directors.
The company also plans to repurchase shares under its authorized program only at times and in amounts as is consistent with the prioritization of achieving its leverage targets.
Pinnacle Foods will continue to pay its quarterly dividend at the current annual rate of $1.30 per share until the transaction is completed. The transaction is expected to close by the end of calendar 2018, subject to the approval of Pinnacle Foods shareholders, the receipt of regulatory approvals and other customary closing conditions.
To read timely stories similar to this, along with money making trade ideas, sign up for a membership to Stockwinners.
This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.