Stock Market Update - Thu Nov 15 09:11:04 EST 2007

Private-label maker Ralcorp Holdings (RAH) announced today that it has signed a definitive agreement to integrate Kraft's (KFT) Post cereal business into its operations in an all-stock merger.  The transaction carries an approximate $2.6 billion value, including the issuance and assumption of roughly $950 million of debt.  The deal is subject to customary closing conditions, but is expected to close in mid-2008.

Kraft will transfer ownership of Post to shareholders in a split-off or a spin-off, leaving Kraft's shareholders with approximately 54% of Ralcorp.  A split-off provides Kraft's shareholders the option to exchange shares of KFT for shares of RAH, while the latter involves a pro rata distribution of shares to Kraft shareholders.  In either method, the transaction is expected to be tax-free to shareholders.

Kraft was rumored to be shopping Post this summer, but talks with Ralcorp only became serious earlier this month.

Acquiring Post will make Ralcorp the third-largest cereal maker and position it to better compete with the likes of Kellogg (K) and General Mills (GIS). 

On an adjusted basis, Ralcorp's 2008 pro forma earnings are presumed to increase between $0.44 and $0.68 per share, assuming the combination had been completed at the beginning of the year.