=Pinnacle Foods (PF) to be acquired by Conagra Brands (CAG) for approximately $68.00/share

• Conagra Brands announced Wednesday that it will acquire Pinnacle Foods for $10.9 billion in cash and debt, forming a powerhouse company in the challenging frozen food category.

Chicago-based Conagra, known for brands like Marie Callender’s, Healthy Choice and Banquet in the frozen food aisles, has long had its sights set on New Jersey-based Pinnacle, whose portfolio includes Birds Eye and Hungry-Man frozen products.

Revamping and modernizing its frozen foods has been part of Conagra’s quest in recent years under CEO Sean Connolly. Based on last year’s figures, net sales of the combined company would have been $11 billion, according to the Conagra news release.

“The acquisition of Pinnacle Foods is an exciting next step for Conagra Brands. After three years of transformative work to create a pure-play, branded food company, we are well-positioned to accelerate the next wave of change,” said Sean Connolly, Conagra CEO, in the news release.

Under the terms of the transaction, 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 implied price of $68.00 per Pinnacle Foods share is based on the volume-weighted average price of Conagra Brands' stock for the five days ended June 21, 2018. The purchase price reflects an adjusted EBITDA multiple of 15.8x, based on Pinnacle Foods' estimated fiscal year 2018 results excluding synergies, and 12.1x adjusted EBITDA including run-rate cost synergies.

• On a percentage basis, Conagra Brands expects the transaction to be low single-digit accretive to adjusted EPS in the fiscal year ended May 2020 and high single-digit accretive to adjusted EPS in the fiscal year ended May 2022.
• Conagra Brands expects to achieve approximately $215 million in annual run-rate cost synergies by the end of fiscal year 2022, with one-time cash costs to achieve the synergies estimated at approximately $355 million, inclusive of expected capital expenditures of approximately $150 million.

Conagra's transformation

Since becoming CEO of Conagra in 2015, Connolly has drastically transformed the company to focus on modernizing a portfolio of branded foods that includes names like Orville Redenbacher's popcorn and Hebrew National hot dogs. It has put money toward its frozen foods business, as millennials have rediscovered the cost and health benefits of eating frozen.

In the process, it has both shed and added to its portfolio. It sold its private-label unit for $2.7 billion in 2016 and later that year spun off its $6.9 billion potato business, Lamb Weston Holdings. It has bought up a number of smaller snack brands, including Angie's Artisan Treats, the parent of Boomchickapop, and Thanasi Foods, the parent of Duke's meat snacks.

Conagra's sales, excluding currency and acquisitions, grew 2 percent in the fourth quarter.

"After three years of transformative work to create a pure-play, branded food company, we are well-positioned to accelerate the next wave of change," Connolly said in a statement on Wednesday.

Pinnacle, meantime, has undergone its own changes. It acquired Boulder Brands, owner of gluten-free foods and snacks like Udi's and Glutino, for roughly $975 million in 2016.