The board of Ralcorp Holdings has unanimously rejected a $4.9 billion, all-cash takeover bid Wednesday from consumer food company ConAgra Foods.
The $86 per share deal — a premium of 3 percent over Tuesday’s closing price – would be funded through cash and through a debt issue, ConAgra said.
The company estimates that a merger would result in annual cost savings of $250 million within three years.
According to ConAgra, an initial letter of interest, with an offer of $82 per share, was sent to the Ralcorp board on March 22.
“We believe this all-cash proposal is highly attractive to Ralcorp’s shareholders and a transformational growth opportunity for both companies,” Gary Rodkin, ConAgra’s CEO, said in a press statement.
“By combining our two businesses, we will create one of the top US food companies, with product offerings across a wide range of price points, categories and channels.”
Still, Ralcorp shares continue to trade higher than the even the sweetened offer price, an indication that investors expect that there eventually will be a higher offer made for the company. Some analysts estimate the company could be worth as much as $98 per share.
ConAgra owns retail brands including Slim Jim, Crunch ‘N’ Munch and Swiss Miss, as well as commercial food products.
Ralcorp , a producer of value-brand and private-label cereals, bakery products, pasta and other consumer foods, as well as Post cereal, which includes the Raisin Bran and Shredded Wheat brands.
The combined company would have $4 billion in private-label sales and create the third-largest U.S. packaged food company, ConAgra said.
ConAgra’s May 4 letter to Ralcorp Holdings chairman William Stiritz shows that Ralcorp has been reluctant to discuss a deal, having rejected the original proposal on April 1.
“Though our Board of Directors is disappointed by your response and your refusal to meet with us or discuss this opportunity, we have reaffirmed our strong belief in the strategic, operational and financial merits of the proposed transaction,” ConAgra’s letter reads.
ConAgra is willing to change the terms of the offer from a 100 percent cash deal and would offer stock in a combined company to Ralcorp shareholders.