Conagra Brands have acquired Pinnacle Foods for around $8.1 billion in a cash-and-stock deal. It is one of the biggest transformations for the company under its CEO Sean Connolly who has been pushing Conagra into frozen foods for some time.
The deal is valued at $10.9 billion including debt. According to reports the pairing of Pinnacle and Conagra will create the second largest frozen food company in the US. Currently, Nestle Foods is leading the frozen foods industry in America. The Healthy Choice-owner company has all its eyes focused towards repackaging and reformulating its existing products to attract the young diners.
Share market responds tepidly to the deal
Although Conagra seems to be elated with the deal, the response of the stock market was tepid as the shares of both Conagra and the Bird’s Eye-owning company were down at the start of the day. The stock of Pinnacle plummeted 3.94% and the shares of Conagra went down by 6.75%. According to trade analysts, the dip is a part of the arbitrage investing activity which is a regular part of a deal especially when a company acquires stocks of the other. However, on the negative side, the dip in the shares of both the companies also can be considered a reflection of the immense pressures the food industry is facing at present.
The past few years have seen the food industry’s growth rate stunted by various factors including margin squeezing retailers and rising costs. According to the company, the deal has been finalized considering the values of Pinnacle at $68/share which is 23% above the closing level of Pinnacle. The New Jersey-based company was pushing to sell its stakes since April 2018 and last week Conagra finally made the approach.
Acquisition to give Conagra more presence in the grocery store
According to analysts, with this acquisition, the Chicago-based company is poised to enhance its presence in the grocery stores across the US. The market for frozen foods seems to be growing up after being slow for years with millennials now developing a new foodie tastes for frozen meals that are less expensive as well as convenient as compared to takeouts. Frozen brands from Pinnacle such as Van de Kamp’s, Birds Eye, and the vegetarian products from the Garden line provide more than 50% of Pinnacle’s revenue.
But Conagra will be facing tough competition as the pressure has increased on the packaged-food makers ever since the acquisition of Whole Foods Market Inc. by Amazon.com Inc. last year.