DEALMAKER
Marc Williams, 38, a corporate partner in the New York office of Davis Polk & Wardwell.
THE CLIENT
Omaha-based ConAgra Foods Inc., one of North America's largest food companies with brands that include Chef Boyardee, Healthy Choice, Orville Redenbacher, and Slim Jim.
THE DEAL
ConAgra said Tuesday it will acquire private-label foods maker Ralcorp in a deal worth $6.8 billion, including assumed debt.
THE DETAILS
The agreement, signed late Monday, calls for ConAgra to pay $90 in cash for each share of St. Louis–based Ralcorp, while also assuming roughly $1.8 billion in debt. The per-share cash portion of the deal represents a 28.2 percent premium over Ralcorp's Monday closing price. To help pay for the acquisition, ConAgra obtained $6 billion in financing commitments from Bank of America.
The deal is expected to close by the end of March 2013, pending the approval of regulators and Ralcorp shareholders. The combined company would see $18 billion in annual sales and would employ more than 36,000 workers.
THE BIG PICTURE
ConAgra has been angling to acquire Ralcorp for more than a year, launching an unsolicited $82-per-share bid for the target in March 2011 before coming back two months later with an $86-per-share offer. Ralcorp rebuffed both bids in favor of sticking with its own restructuring plans. After the initial rejection, ConAgra took steps toward taking its bid hostile, at which point Ralcorp adopted a "poison pill" shareholder rights plan to defend itself.
In the ensuing months, Ralcorp proceeded to spin off of its Post cereal business—which includes brands like Raisin Bran and Shredded Wheat—to shareholders in a $900 million tax-free deal. Ralcorp also paid $545 million to acquire the Sara Lee Corporation's refrigerated dough business earlier in the year. ConAgra, meanwhile, opted to shelve the hostile takeover before circling back with a sweetened offer this year.
The Ralcorp acquisition would make ConAgra one of the world's largest packaged food companies and the top producer of private-label packaged foods in North America. Ralcorp offers a variety of generic food options, including cereal, pasta, and frozen waffle brands. In addition to expanding its operations, ConAgra expects $225 million in annual savings as a result of the deal within four years.
THE BACKSTORY
ConAgra's year-plus pursuit of Ralcorp has provided a banquet of work for attorneys at Davis Polk, who have advised their longtime client throughout the courtship process. The firm has close ties to ConAgra, with the chairman of the company's executive committee, Steven Goldstone, having served as a senior partner at Davis Polk from 1978 to 1995. As The Am Law Daily has reported, Goldstone went on to become general counsel and CEO of RJR Nabisco before retiring in 2000.
Goldstone joined ConAgra in 2003. At that point, Williams says, the company began turning to Davis Polk frequently as its outside counsel. (Williams himself did not get pulled in to do work for the company until ConAgra first approached Ralcorp last year.) Acquiring Ralcorp would represents the largest deal Davis Polk has advised ConAgra on since the relationship began. "We've been doing work for them for several years now, but this was obviously a large and transformational transaction for the company, so it was nice that they asked us to help them on this one," Williams says.
ON CLOSING
For ConAgra to finally land Ralcorp, Williams says, the company had to be patient. ConAgra could have opted to take last year's bid directly to Ralcorp's shareholders, a move that could have resulted in an ugly and drawn-out process. Instead, ConAgra took a step back from the negotiating table and allowed its target to move forward with its own strategic plans, which resulted in the Post and Sara Lee transactions. But ConAgra's appetite for Ralcorp as a strategic piece never waned.
"Ralcorp was sort of a unique opportunity, I think, for ConAgra," Williams says. "There are certainly other companies out there that are in this space, but there are few if any that have the scope and size that Ralcorp has."
While ConAgra did up the ante by raising its per-share offer, one development that helped the acquirer's cause over the past year was a shake-up of Ralcorp's board. In January, following the Post spin-off, a number of Ralcorp board members broke off to become directors of that newly created company, reshaping the makeup of Ralcorp's board. Meanwhile, last month saw the appointment of activist investor Keith Meister to the Ralcorp board. At the time, Reuters reported that Meister, a one-time disciple of investor Carl Icahn, was urging the company to consider a possible sale.
Of course, Williams says he can't speak for Ralcorp as to why ConAgra's most recent proposal seemed more attractive than previous offers. But he can speculate that the changes at the company over the past year helped make the timing right for a deal this time around. "My sense is that that change in the board composition and their business, having separated the branded and private-label businesses, led them to have a different view about doing a deal this time around," he says.
Williams understands that, for ConAgra, waiting may have been a challenge, but it's one he says paid off: "I think [ConAgra] showed some discipline in walking away from the transaction [last year] and putting a stop on their bidding. The challenge for them was simply to remain patient until there was an opportunity to move forward."
