* ConAgra bought business in 2013 for $5.1 bln
* TreeHouse to fund deal with new debt, stock
* ConAgra shares up 1.7 percent; TreeHouse down 5.6 percent (Adds analyst comment, company comment and updates share price)
By Anjali Athavaley and Siddharth Cavale
Nov 2 (Reuters) - ConAgra Foods Inc said it would sell its private-label unit to TreeHouse Foods Inc for $2.7 billion, after struggling to turn around the business it acquired just two years ago.
ConAgra’s shares were up 1.7 percent at $41.24 in morning trading on Monday after jumping as much as 13 percent before the market opened. TreeHouse fell 5.6 percent to $80.85.
“Given how long the process seemed to take and that (TreeHouse) in the end perhaps was the sole negotiating partner, we are slightly relieved for (ConAgra’s) sake that the (selling price) was not lower,” JPMorgan analyst Ken Goldman said in a note.
ConAgra, the maker of Slim Jim beef jerky and Chef Boyardee pasta, became the biggest U.S. manufacturer of private-label foods after it bought Ralcorp for $5.1 billion in 2013.
But the business has since been plagued by integration costs and customer service problems as well as low profit margins due to price concessions.
In June, newly appointed ConAgra Chief Executive Officer Sean Connolly announced intentions to sell the business so that the company could focus on its branded products.
Reuters reported earlier this month that TreeHouse was in advanced talks to acquire the unit.
TreeHouse, which will become the No. 1 private-label food manufacturer in the United States after the deal, said it would fund the cash transaction with about $1.0 billion in stock and $1.8 billion in new debt.
TreeHouse said it would have pro forma sales of nearly $7 billion and adjusted earnings of about $690 million before interest, taxes, depreciation and amortization following the deal, which it expects to close in the first quarter of 2016.
In a conference call with analysts, company executives said the deal would give the combined entity a presence in more than 20 product categories and result in savings in procurement and transportation.
The company said it expected the acquisition to reduce earnings before special items by 20 cents to 35 cents per share in the first year after closing but add 55 cents to 70 cents in the second year.
ConAgra said it expected the deal to result in a capital loss carryforward of about $4.2 billion with an approximate tax value of $1.6 billion, which can be used to offset future capital gains over the next five years.
Morgan Stanley & Co LLC and BofA Merrill Lynch advised TreeHouse, while Goldman Sachs and Centerview Partners advised ConAgra. (Reporting by Siddharth Cavale in Bengaluru; Editing by Saumyadeb Chakrabarty and Lisa Von Ahn)