After rebuffing ConAgra, Ralcorp to split itself

BANGALORE Thu Jul 14, 2011 7:51pm EDT

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BANGALORE (Reuters) - Private-label food maker Ralcorp Holdings Inc RAH.N said it would hive off its Post Foods cereals unit, after it twice rejected an unsolicited takeover bid by branded food giant ConAgra Foods Inc (CAG.N).

The spin-off will create two pure-play companies, with Ralcorp focusing on the fast-growing market for cheaper non-branded foods and Post concentrating on branded cereals.

Ralcorp had been examining a split-up before ConAgra approached, a source familiar with the matter told Reuters. The person, who was not authorized to speak to the media, declined to be named.

The split-up is not in defense of the bid from ConAgra, the source said.

Post Foods will issue $1.1 billion to $1.2 billion of debt with net cash proceeds of about $1 billion going to Ralcorp.

The company will use the proceeds to reduce debt and buy back shares, hoping to keep shareholders happy and to prevent them from taking an interest in ConAgra's $4.9 billion takeover bid.

Omaha, Nebraska-based ConAgra's shares fell 4 percent in extended trading, as investors view the spin-off as a setback to the food major's plans to buy Ralcorp and bolster its presence in the booming private-label food market.

ConAgra, which makes Slim Jim meat snacks and Healthy Choice meals and was looking to bet on the growing demand for low-priced food, issued a statement saying it believed its proposed acquisition of Ralcorp continued to be in the best interest of Ralcorp's shareholders.

The spin-off comes three years after Ralcorp bought Post Foods, which includes brand-name cereals such as Honey Bunches of Oats and Pebbles, from U.S. consumer giant Kraft Foods Inc KFT.N for $2.6 billion, including debt.

Post Foods had nearly $1 billion in net sales in the year ended March 31.

After the separation, Ralcorp will focus on categories with annual retail sales of about $41 billion.

Following the spin-off -- which does not require approval from Ralcorp shareholders -- the company will continue to trade on the New York Stock Exchange, while Post Foods is expected to be listed on the same exchange. FACTBOX on Ralcorp M&A:

Dave Skarie, co-CEO and president of Ralcorp, will retire effective December 31, 2011. Co-CEO Kevin Hunt will be the chief executive, upon completion of the spin-off.

Skarie will lead the separation of Post Foods from Ralcorp in the interim, while the company searches for a CEO for the cereals unit.

Credit Suisse Securities acted as financial adviser on the spin-off.

Separately, Ralcorp also said it expects earnings of $5.01 to $5.16 per share for the year ending September 30.

It also said its accelerated cost reduction program is expected to result in an additional $80 million to $100 million in operating profit over the fiscal years 2012-2014.

The company expects to spend additional capital of $115 million to $135 million to complete these projects.

Ralcorp shares fell 4 percent to $83 in trading after the bell. They closed at $86.62 Thursday on the New York Stock Exchange.

(Additional reporting by Brenton Cordeiro in BANGALORE and Jessica Hall in NEW YORK; Editing by Joyjeet Das, Gary Hill)

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