UPDATE 2-Post Holdings nears $2.5 bln deal for Michael Foods -source

Wed Apr 16, 2014 4:57pm EDT

(Adds background on the deal and Michael Foods)

April 16 (Reuters) - Cereal maker Post Holdings Inc is close to a deal to acquire eggs and dairy producer and distributor Michael Foods Group Inc for $2.5 billion, prevailing over a rival bid from Tyson Foods Inc, said a person familiar with the matter.

The deal is set to make Post Holdings a major player in the protein market, as healthy food options gain in popularity among consumers. Reuters first reported last week that Post Holdings and Tyson Foods were the final bidders for Michael Foods.

News of Post Holdings winning the auction for Michael Foods, which was first reported by the Wall Street Journal earlier on Wednesday, drove the company's shares up 6 percent, giving it a market value of around $2.1 billion.

Goldman Sachs Group Inc's private equity arm bought Michael Foods from buyout firm Thomas H. Lee Partners LP in 2010 for around $1.7 billion. Thomas H. Lee retained an ownership stake of about 20 percent as part of that transaction.

The source asked not to be identified because the deal has not yet been officially announced. Representatives for Goldman Sachs, Post, Michael Foods and Tyson Foods did not respond to requests for comment.

Minnetonka, Minnesota-based Michael Foods produces and distributes products including specialty eggs, refrigerated potatoes, cheese and other dairy products. St. Louis-based Post makes cereal products that include Raisin Bran.

Post has been pursuing deals aggressively in the last 12 months. The company has acquired peanut butter maker Golden Boy Foods Ltd, pasta company Dakota Growers Pasta Co, sports nutrition brand PowerBar, protein bar maker Dymatize Enterprises LLC, and protein company Premier Nutrition Corp.

In 2013, Michael Foods posted operating profit of $163.9 million, up 22 percent from the same period the year before. (Reporting by Olivia Oran in New York; Editing by Andrew Hay and Cynthia Osterman)