TreeHouse Foods has signed a definitive agreement to acquire ConAgra Foods' private-label operations for around $2.7bn in cash.
The acquisition will significantly bolster TreeHouse's operations; it will have more than 50 manufacturing facilities, 16,000 employees, and will double its annual sales to approximately $7bn.
However, the real test for TreeHouse lies in turning around a struggling operation.
In 2013, ConAgra purchased the unit from Ralcorp for approximately $6.7bn. However, the unit has been struggling due to some missteps of the management.
ConAgra Foods president and CEO Sean Connolly said: "The sale of our private label business marks another important milestone as we remake ConAgra Foods into a focused, higher-margin, more contemporary and higher-performing company.
"The sale of our private label business marks another important milestone as we remake ConAgra Foods into a focused, higher-performing company."
"This transaction will enable ConAgra to sharpen our focus and resources on our Consumer Foods and Commercial Foods segments as we continue to move quickly to drive sustainable growth and deliver enhanced shareholder value."
Connolly continued, "We are confident that the private label business will be in good hands with TreeHouse Foods, and better-positioned to reach its full potential as part of a focused private label company."
TreeHouse Foods chairman and CEO Sam K Reed said: "The union of TreeHouse and ConAgra's private brands business establishes an industry leader in customer brands and custom products with significant scale, scope and skill, and enables us to extend our reach in the grocery store by over ten shelf stable and refrigerated food categories.
"Importantly, the combination will also strengthen our ability to support our customers' efforts to build their corporate brands and offer consumers the best combination of choice and value."
As per the terms of the agreement, ConAgra Foods will sell the majority of its private label operations, which have been listed as discontinued.
ConAgra Foods will hold on to some private label operations that have a strong link to its Consumer Foods business, especially canned pasta, cooking spray, peanut butter, pudding / gels, Gelit frozen pasta product offerings, and the HK Anderson and Kangaroo brand equity, trademark, and business portfolios.
The results for these operations have been moved to the Consumer Foods reporting segment in the first quarter of fiscal 2016.
ConAgra Foods intends to primarily use the net proceeds to reduce debt.
Once the deal is completed, the company expects to have a capital loss carry forward of around $4.2bn, with an approximate tax value of $1.6bn.
The transaction needs approval from regulatory authorities, and is subject to customary closing conditions. It is likely to be complete in the first quarter of calendar year 2016.
