Pinnacle Foods products
Conagra has approached Pinnacle Foods to express interest in an acquisition, according to reports.

CHICAGO — Just a few days after announcing it has signed an agreement to sell its Wesson il brand to The J.M. Smucker Co. for $285 million, Conagra Brands, Inc. is back in the news with reports the company has approached Pinnacle Foods to express interest in an acquisition. The reports pushed the share prices of Pinnacle and Conagra up 6% and 4% in early trading on June 1.

According to Reuters, Conagra’s approach to acquire Pinnacle Foods took place in the past few weeks. It would not be the first time that Pinnacle has been an acquisition target. The Parsippany, N.J.-based packaged foods maker terminated its merger agreement with the Hillshire Brands Co. back in mid-2014 after Hillshire agreed to be acquired by Tyson Foods, Inc. At that time, Hillshire was led by Sean Connolly, who currently is the chief executive officer of Conagra.


Conagra has taken several steps over the past year to reshape its portfolio. Last year the company sold its private label business to TreeHouse Foods for $2.7 billion, a move the company said would allow it to focus on its branded food business. Also last year Conagra spun off its Lamb Weston Holdings Inc. frozen potato business, and more recently agreed to sell its Wesson oil brand. 

Pinnacle Foods, meanwhile, has made a push to build out its portfolio of healthier products. The company last year acquired Boulder Brands for $975 million.

Robert Moskow, Credit Suisse
Robert Moskow, research analyst with Credit Suisse

In a May 31 research report, Robert Moskow, research analyst with Credit Suisse, said a potential acquisition “would not come as much of a surprise.”

“Conagra c.e.o. Sean Connolly and his team have telegraphed their strong desire to expand the company’s scale through acquisitions and consolidate the fragmented frozen foods category,” Mr. Moskow said. “Connolly made a bid for Pinnacle once before when he was c.e.o. of Hillshire Brands.”

Mr. Moskow thinks Conagra would be willing to pay a hefty premium to acquire Pinnacle.

Boulder Brands products, Pinnacle Foods
Last year, Pinnacle acquired Boulder Brands for $975 million.

“Conagra has created significant shareholder value over the past two years by improving the company’s stodgy corporate culture, streamlining the portfolio, reducing overhead costs, and walking away from money-losing promotional deals and s.k.u.s (stock-keeping units),” he said. “But with the company now coming to the tail end of the cost savings from those strategies, and the core Conagra business declining at a rate of 4%, the company needs to do something more aggressive to improve the quality of its portfolio longer term.” 

Mr. Moskow said Pinnacle represents “a uniquely attractive opportunity” for Conagra to boost its growth rate and create significant synergies.

Birds Eye vegetables, Pinnacle Foods
Pinnacle's portfolio includes healthy food brands, such as Birds Eye vegetables.

While Conagra might have been able to pay in the mid-$50s per share for Pinnacle a year ago, the company now is likely to have to pay at least $72 per share, Mr. Moskow said.

“Pinnacle’s board is not entrenched, but it would demand a big premium to sell the business,” he said. “In the midst of weakening packaged foods industry environment, Pinnacle has generated enormous shareholder value by sticking to its portfolio strategy, making smart acquisitions, and introducing resonant new products that merit premium prices. It is well-positioned to capitalize on growing consumer demand for healthier foods with brands like Birds Eye vegetables, Gardein frozen meals, and Evol frozen meals. It is also in the early stages of a multi-year plan to boost its gross margin. To get a deal done, Conagra probably would have to offer seats on the board and other assurances regarding job security.”