Dealtalk: ConAgra pressures Ralcorp, to look at others

PHILADELPHIA Wed Sep 14, 2011 2:55pm EDT

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PHILADELPHIA (Reuters) - For ConAgra Foods Inc (CAG.N), there are other potential takeover targets out there besides Ralcorp Holdings Inc RAH.N.

Rather than wasting time and money with a costly takeover battle with a company with strong takeover defenses, ConAgra may soon look at other deals in the private-label business, a source familiar with the situation said on Wednesday. The source was not authorized to speak to the media and declined to be named.

ConAgra could not be immediately reached for comment.

ConAgra has given Ralcorp a September 19 deadline to enter merger talks or the diversified food company has said it would walk away from its $5.2 billion offer to buy the maker of Post cereals and store-brand foods. ConAgra originally sent a letter of interest to Ralcorp in March.

Shares of Ralcorp dropped over 8 percent on Wednesday to $78.16, well below ConAgra's $94 a share takeover offer. Shares of ConAgra dropped 2.7 percent to $23.40.

"Ralcorp is intractable. They have been this whole time. No one thinks they are going to have a change of heart by Monday," said an arbitrageur who declined to be named because he was not authorized to speak to the media.

Analysts said ConAgra could use share buybacks to strengthen its stock price and look at other acquisition opportunities.

ConAgra's deadline for Ralcorp puts an expiration date on a merger battle that could have dragged on for months. Another deal that found some resolution on Wednesday was the battle for Dollar Thrifty Automotive Group Inc DTG.N after Avis Budget Group Inc (CAR.O) dropped out of the bidding war with rival suitor Hertz Global Holdings Inc (HTZ.N) after 17 months.

"There's no point in dragging this on," said the arbitrageur. "Either hold talks or don't -- but just do something. It's good that ConAgra isn't getting sucked into a long battle."

Ralcorp has rejected ConAgra's approach three times and set a plan to separate its Post cereals business as a better option than being bought.

Ralcorp also set a deal to buy Sara Lee Corp's North American private label refrigerated dough business.

Proxy advisory firm ISS, a unit of MSCI Inc, recently slammed Ralcorp for not holding any talks with ConAgra or explaining the reason for its rejection of the offer.

"Other than accelerating the timetable, this new artificial deadline doesn't appear to change the likelihood of negotiations, which we continue to believe are better than fifty-fifty," said Janney Capital Markets analyst Jonathan Feeney.

Unless Ralcorp negotiates a deal, ConAgra has no other options. Ralcorp is incorporated in Missouri, where strict anti-takeover laws protect an unwilling seller.

Ralcorp also adopted a poison-pill anti-takeover defense that would make it costly for ConAgra to make a hostile offer.

ConAgra, whose products include Hunt's ketchup, Chef Boyardee pasta and Pam cooking spray, wants Ralcorp's private-label business -- cheaper foods that retailers brand as their own. Private-label food sales have outpaced growth in branded packaged foods in each of the past four years, according to Consumer Edge Research.

Ralcorp and TreeHouse Foods Inc (THS.N) are the biggest publicly held makers of private-label foods, but ConAgra could pursue acquisitions of several smaller, privately held companies rather than making one large acquisition, said the source familiar with the situation.

"If a ConAgra-Ralcorp deal does fall through, TreeHouse could receive some interest. Yet, its lower synergy potential with CAG and heftier price tag ... make it a less attractive asset than a combined Ralcorp entity," Feeney said.

"There are other assets out there. Ralcorp is not the only way to grow their private label business," said a second arbitrageur, who declined to be named because he was not authorized to speak with the media.

(Additional reporting by Martinne Geller in New York, editing by Gerald E. McCormick)

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