On Monday, ConAgra announced it was its ailing private label to TreeHouse Foods for $2.7 billion in cash. Jim Cramer noted that this was significantly less than the $5 billion ConAgra originally paid for the business when it purchased Ralcorp in 2012 and decided to dig a little deeper.
ConAgra is best known as a large, packaged-food company. Its private label business makes the knock-off store brands for various supermarkets. TreeHouse is the dominant player in the private label food space and has a long history of making smart acquisitions.
Unfortunately, Wall Street did not love the deal, as TreeHouse's stock was slammed more than 5 percent on Monday. This was partially because TreeHouse said it would do a $1 billion equity offering to help pay for the transaction, and because the company announced revenues that were lighter than expected.
"Here's the thing though, I think TreeHouse is in a much better position to make this business work than ConAgra ever was, and if they can turn it around, then you better believe this stock will go higher, maybe even before the secondary gets priced," the "Mad Money" host said.
To learn more about the deal, Cramer spoke with TreeHouse Foods Chairman and CEO Sam Reed.
The CEO commented on the significance of the deal, saying, "It's the largest to date, and in context, Jim, we are now 10 times larger in revenues than when we first started. It's a transformative event by any definition and in all dimensions."
Reed explained that there were many actions taken by ConAgra recently that actually made its private-label brand better, such as creating a separate management team for the division in June in preparation. That team will remain with the company in order to produce positive revenue and profit trends.
Among other synergies that exist, Reed highlighted procurement as being better with TreeHouse. He attributed it to three factors. The first is the simple fact that TreeHouse will now double and have an economy of scale.
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The second is that TreeHouse found there was a lot of over-engineering and packaging that could be addressed. The third factor Reed considered as being the most important factor: simplification.
"We had a business that when we acquired it had 56 containers of different sizes and shapes, cost. That business now has virtually doubled in size, and we have only options of four containers dramatically improving the productivity and the cost structure," Reed said.