The merger of Conagra Brands and Pinnacle Foods announced this week creates a new food industry giant and could feed the resurgence of interest in centre grocery aisles, an industry analyst says.
“Combining ConAgra and Pinnacle would really create a new giant up toward the top of the U.S. packaged food industry, edging closer to names like Kraft Heinz and Nestle in share, and particularly a new one in the frozen food aisle, with household name brands like Birds Eye and Healthy Choice, both of which are experiencing strong recent growth and a bit of a resurgence, all housed under one roof, ” said Dewey Warner, a research analyst at Euromonitor International.
Conagra Brands and Pinnacle Foods announced Conagra will acquire all outstanding shares of Pinnacle Foods in a cash and stock transaction valued at about $10.9 billion, including Pinnacle Foods’ outstanding net debt.
“There has been a ton of attention lately on the renaissance happening in the frozen food aisle, and understandably so. There has been an emphasis on the influence of fresh food and the growth in the outer perimeter of grocery stores, so a return to growth and interest in the center frozen aisles is notable,” Warner said.
Conagra CEO Sean Connolly said acquiring Pinnacle Foods is an “exciting next step” after three years of transformative work to create a “pure-play” branded food company.
“The addition of Pinnacle Foods’ leading brands in the attractive frozen foods and snacks categories will create a tremendous opportunity for us to further leverage our proven innovation approach, brand-building capabilities, and deep customer relationships,” he said.
“With greater scale across leading, iconic brands, an unwavering focus on driving profitable growth, and a strong balance sheet and cash flow, we are creating a tremendous platform to drive meaningful shareholder value.”
Pinnacle’s shareholders will get $43.11 per share in cash and 0.6494 shares of Conagra common stock for each share of Pinnacle Foods held. The implied price of $68 per Pinnacle share is based on the volume-weighted average price of Conagra stock for the five days ended June 21.
With annual net sales in excess of $3 billion, Pinnacle’s’ portfolio of frozen, refrigerated and shelf-stable products includes brands such as Birds Eye, Duncan Hines, Earth Balance, EVOL, Erin’s, Gardein, Glutino, Hawaiian Kettle Style Potato Chips, Hungry-Man, Log Cabin, Tim’s Cascade Snacks, Udi’s, Vlasic and Wish-Bone, among others. Based on both companies’ latest fiscal year results, pro forma net sales would have been approximately $11 billion.
Pinnacle’s Canadian assets include its plant-based protein processing facility at Richmond, B.C., which it acquired in 2014 when it bought Garden Protein International, and a gluten-free bakery at Laval, Que., acquired via its takeover of Boulder Brands in 2016.
Warner cautioned the merger is also a reflection of a changing marketplace.
“I believe opportunities for growth are ultimately limited in this space,” he said. “Combining the resources of ConAgra and Pinnacle, along with their selections of recognizable and increasingly on-trend health-oriented brands (particularly Pinnacle’s), could help to solidify a portion of this potential growth for both companies and limit the growth potential of competitors, assuring that they can compete well with other large manufacturers.”