CHICAGO — Three years ago, Sean Connolly, who was then starting out as the chief executive officer of Conagra Brands, laid out his vision for turning around the struggling company. He outlined a three-year plan focused on improving innovation, changing the company’s culture and divesting non-core assets. With the proposed acquisition of Pinnacle Foods, Inc., Parsippany, N.J., Conagra Brands is entering its next phase of growth.
“By acquiring Pinnacle, we’re combining two portfolios with industry-leading growth to create an $11 billion company with iconic brands in frozen, snacking, refrigerated and grocery categories,” Mr. Connolly said during a June 27 conference call to discuss Conagra Brands’ fiscal 2018 results. “The new company will be a leader in frozen foods and will have enhanced scale overall to better partner with customers.”
Conagra entered into an agreement to acquire Pinnacle Foods in a transaction valued at approximately $10.9 billion. Under the terms of the agreement, Pinnacle Foods shareholders will receive $43.11 per share in cash and 0.6494 shares of Conagra Brands common stock for each share of Pinnacle Foods held.
The Pinnacle Foods portfolio features a variety of well-known brands, including Birds Eye, Mrs. Paul’s, Hungry-Man, Duncan Hines, Log Cabin, Wish-Bone, Udi’s and many others. In addition to adding scale to Conagra’s presence in the center of the retail store, the acquisition will make the company the No. 2 player in the United States in frozen foods.
“As you know, I’ve been saying for years that there is significant opportunity in frozen,” Mr. Connolly said. “It’s a large space with long-term tailwinds. This transaction positions us to continue to build on our success and deliver even more great products for our consumers.”
Mr. Connolly added that the strategic rationale for acquiring Pinnacle Foods “is clear.” He noted the complementary product portfolio, enhanced scale in frozen foods and “more opportunities” for innovation. When an analyst on the call pressed Mr. Connolly about what the innovation opportunities may be, he used Pinnacle’s Duncan Hines brand as an example.
“Duncan Hines, if you look at the fantastic innovation that’s come out of (the) Pinnacle team on Duncan Hines in the last year or so, it’s really demonstrating that Duncan Hines operates well as a sweet treat … And we think there is real innovation opportunity still ahead there, and it fits squarely with what we do in sweet treats where we have great brands like Swiss Miss and Snack Packs. So that’s very close to home for us.”
While the proposed Pinnacle acquisition dominated the day’s news, Conagra Brands also reported positive results for fiscal 2018, ended May 27. Net income for the year totaled $808.4 million, equal to $2 per share on the common stock, and an improvement when compared with the same period of the previous year when net income was $639.3 million, or $1.48 per share.
Sales for the quarter rose a little more than 1% to $7,938.3 million.
“Fiscal 2018 marked another year of tremendous progress in our transformation.” — Sean Connolly, Conagra Brands
Three of the company’s four business units experienced sales increases during the year, including Grocery & Snacks (2.4%), Refrigerated & Frozen (3.8%) and International (3.4%). Foodservice segment sales fell 2.2% during the year.
“Fiscal 2018 marked another year of tremendous progress in our transformation, despite a challenging inflationary environment,” Mr. Connolly said. “The year was further proof that we are squarely on track to deliver on the long-term commitments we presented at our 2016 investor day.”
The Pinnacle Foods acquisition is expected to be finalized by the end of 2018.