Overview -- U.S.-based ConAgra Foods Inc. announced it will be acquiring Ralcorp Holdings Inc. (BBB-/Negative/--) for approximately $90 per share plus the assumption of debt for an enterprise value of roughly $6.8 billion. -- We believe the proposed acquisition would meaningfully increase ConAgra's debt obligations and weaken its credit protection measures. -- We placed all our ratings on ConAgra Foods Inc. on CreditWatch with negative implications. Concurrently, we affirmed Ralcorp Holdings Inc.'s 'BBB-' corporate credit rating. We will review the outlook on Ralcorp upon the close of the transaction and resolution of ConAgra's CreditWatch listing. -- We placed Ralcorp Holdings Inc.'s issue-level ratings on CreditWatch with negative implications. Rating Action On Nov. 27, 2012, Standard & Poor's Ratings Services placed its 'BBB' long term corporate credit rating, 'A-2' short term and commercial paper, and all issue-level debt ratings on Omaha, Neb.-based ConAgra Foods Inc. on CreditWatch with negative implications, meaning that we could lower or affirm the ratings following the completion of our review. At the same time, Standard & Poor's placed Ralcorp Holdings Inc.'s issue-level ratings on CreditWatch with negative implications, meaning that we could lower or affirm the ratings following the completion of our review. Ralcorp's 'BBB-' corporate credit rating is affirmed. The outlook on the corporate credit rating is negative. We estimate ConAgra had about $4.1 billion of lease and pension- adjusted debt outstanding at Aug. 26, 2012. As of June 30, 2012, we estimate that Ralcorp had approximately $2.1 billion adjusted debt outstanding. Rationale ConAgra's CreditWatch negative listing follows its announcement that it will be acquiring Ralcorp for about $6.8 billion, funded primarily with a combination of cash, existing credit facilities, new debt, and up to $350 million of new equity. ConAgra management stated it intends to prioritize its cash flow to apply to deleveraging, maintain its annual dividend of $1.00 per share, and will significantly reduce its share repurchases for a period of time. Management also estimates cost synergies from the acquisition of roughly $225 million to be fully realized in four years. We recognize that ConAgra will increase its scale, gain synergy opportunities, and increase its currently limited presence in the growing private label segment as a result of this acquisition. Although our assessment of ConAgra's business risk profile remains 'satisfactory' factoring in the Ralcorp acquisition, we could consider revising our business risk profile to 'strong' over the intermediate term after the company successfully integrates Ralcorp and executes its private label growth strategy. However, we believe a meaningfully debt-financed transaction would weaken ConAgra's credit protection measures below current levels; specifically, we estimate the ratio of lease- and pension-adjusted total debt to EBITDA would increase to the 4x area and funds from operations to total debt will decline to the high teens or low 20% area as compared to about 2.1x and 32.5%, respectively, for the 12 months ended Aug. 26, 2012. We had expected ConAgra to maintain credit protection metrics more in line with the company's current 'intermediate' financial risk profile, in order to maintain the current ratings and outlook given our assessment of its 'satisfactory' business risk profile, and had previously stated that we would revise the outlook to negative or lower the rating if ConAgra's leverage increases over 3x .As a result, we would expect to lower ConAgra's corporate credit rating by one notch to 'BBB-' if its acquisition of Ralcorp proceeds as per current plans. In addition, we would expect to lower ConAgra's issue-level ratings by at least one notch if we lower the corporate credit rating to 'BBB-'. However, we would also review ConAgra's issue-level ratings for potential structural subordination once more information becomes available on the acquisition financing, as well as the allocation of assets, liabilities, and cash flow among the entities in the post-acquisition organizational structure. The affirmation of Ralcorp's corporate credit rating is based on our expectation that we would lower ConAgra's corporate credit rating by one notch, and that Ralcorp's corporate credit rating would reflect our assessment of ConAgra's corporate credit rating following the acquisition. However, the CreditWatch negative placement of Ralcorp's issue-level ratings indicates that we could either lower or affirm the ratings following the completion of our review of ConAgra's corporate credit rating and possible structural subordination of its issue-level ratings. We would also equalize the outlook for Ralcorp with the outlook we assign to ConAgra upon completion of the CreditWatch listing. In the event that ConAgra refinances Ralcorp's debt, we would withdraw all the ratings on Ralcorp. CreditWatch We will resolve these CreditWatch listings for both companies following our review of the financial impact of the transaction on ConAgra's financial risk profile over the next two years, as well as its ability to restore credit metrics to those more in line with our benchmarks during this time period. Upon completion of our review, the corporate credit rating for ConAgra will likely be lowered by one notch if the transaction proceeds as currently contemplated with largely debt financing, and the issue-level ratings will likely be lowered by at least one notch, yet could be lowered further depending upon the outcome of our review of potential structural subordination following the acquisition. The issue-level ratings for Ralcorp could potentially be lowered or affirmed. Ratings for Ralcorp could also be withdrawn in the event that this debt is repaid. Alternate contact for Jeff Burian: (1) 973-255-7807. Related Criteria And Research -- Corporate Ratings Criteria 2008, April 15, 2008 -- Key Credit Factors: Criteria for Rating The Global Branded Nondurable Consumer Products Industry, April 28, 2011 -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012 Ratings List Ratings Placed on CreditWatch To From ConAgra Foods Inc. Corporate Credit Rating BBB/Watch Neg/A-2 BBB/Stable/A-2 ConAgra Foods Inc. Senior Unsecured BBB/Watch Neg BBB Subordinated BBB-/Watch Neg BBB- Commercial Paper A-2/Watch Neg A-2 ConAgra Holdings (Australia) Pty. Ltd. Commercial Paper A-2/Watch Neg A-2 Ratings Affirmed Ralcorp Holdings Inc. Corporate Credit Rating BBB-/Negative/-- Ratings Placed on CreditWatch To From Ralcorp Holdings Inc. Senior Unsecured BBB-/Watch Neg BBB- Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.