Conagra Brands to Acquire Pinnacle Foods for $10.9B

Conagra Brands Inc. (CAG), the packaged foods company, announced Wednesday it is acquiring Pinnacle Foods Inc. (PF) in a cash and stock deal valued at $10.9 billion.

In a press release announcing the acquisition, the companies said the transaction also includes Pinnacle's outstanding net debt. Pinnacle shareholders will get $43.11 per share in cash and 0.6494 shares of Conagra common stock for each Pinnacle share held. They will own approximately 16% of the combined company. That gives the deal an implied price of $68 per share of Pinnacle.

"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, president and chief executive officer of Conagra Brands.  (See more: General Mills Reacts to Inflation in Food Industry.)

Conagra stock was trading almost 7% lower and Pinnacle Foods stock was trading 5% lower in pre-market trading.

According to the press release, with this acquisition Conagra will have a portfolio of leading brands in attractive areas including frozen & refrigerated meals and snacks & sweet treats. The two firms are among the fastest growing companies in the consumer packaged goods market based on consumption, and Conagra expects to continue that momentum. It said the deal will be low single-digit accretive to adjusted EPS in the fiscal year ending May 2020 and high single-digit accretive to adjusted EPS in the fiscal year ended May 2022.  Combined the company expects to have around $215 million in costs savings per year by the end of fiscal year 2022 following one-time cash costs of about $355 million and capital expenditures of about $150 million.

Conagra said it will fund the deal with $3.0 billion of Conagra equity issued to Pinnacle shareholders and $7.9 billion in cash via  $7.3 billion of transaction debt and approximately $600 million of incremental cash proceeds from a public equity offering and/or divestitures. Pinnacle shareholders are expected to own approximately 16% of the combined company. Conagra said it plans to maintain its quarterly dividend at the current annual rate of $0.85 per share during fiscal 2019. After that dividend increases will be modest as it focuses on deleveraging. (See more: Jana Partners Takes 9.1% Stake in Pinnacle Foods, Stock Jumps.)

"Today's transaction provides Pinnacle Foods shareholders with substantial and immediate value, as well as the opportunity to participate in the significant upside potential of the combined company," said Pinnacle's chief executive officer Mark Clouse in the same press release. "The portfolios and capabilities of both enterprises are impressive and complementary. We look forward to working through a seamless transition with the Conagra Brands team."