Conagra Brands’ $10.9 Billion Acquisition of Pinnacle Foods

Goldman Sachs and Centerview Partners are acting as financial advisors to Conagra Brands, and Jones Day is acting as its legal advisor. Evercore and Credit Suisse are acting as financial advisors to Pinnacle Foods and Cravath Swaine & Moore LLP is acting as its legal advisor. Morgan Stanley and Rothschild & Co. provided strategic advice to Pinnacle Foods.

Conagra Brands, Inc. (NYSE: CAG) and Pinnacle Foods Inc. (NYSE: PF) have unanimously approved a definitive agreement under which Conagra Brands will acquire all outstanding shares of Pinnacle Foods in a cash and stock transaction valued at approximately $10.9 billion, including Pinnacle Foods’ outstanding net debt. Under the terms of the transaction, Pinnacle Foods shareholders will receive $43.11 per share in cash and 0.6494 shares of Conagra Brands common stock for each share of Pinnacle Foods held. The implied price of $68.00 per Pinnacle Foods share is based on the volume-weighted average price of Conagra Brands’ stock for the five days ended June 21, 2018. The purchase price reflects an adjusted EBITDA multiple of 15.8x, based on Pinnacle Foods’ estimated fiscal year 2018 results excluding synergies, and 12.1x adjusted EBITDA including run-rate cost synergies.

The combination of two growing portfolios of iconic brands will serve as a catalyst to accelerate value creation for shareholders. The transaction will enhance Conagra Brands’ multi-year transformation plan and expand its presence and capabilities in its most strategic categories, including frozen foods and snacks. With annual net sales in excess of $3 billion, Pinnacle Foods’ portfolio of frozen, refrigerated and shelf-stable products includes such well-known brands as Birds Eye, Duncan Hines, Earth Balance, EVOL, Erin’s, Gardein, Glutino, Hawaiian Kettle Style Potato Chips, Hungry-Man, Log Cabin, Tim’s Cascade Snacks, Udi’s, Vlasic and Wish-Bone, among others. Based on both companies’ latest fiscal year results, pro forma net sales would have been approximately $11 billion.

Conagra Brands has secured $9.0 billion in fully committed bridge financing from affiliates of Goldman Sachs Group, Inc. (“Goldman Sachs”). The $10.9 billion purchase price is expected to be financed with $3.0 billion of Conagra Brands equity issued to Pinnacle Foods shareholders and $7.9 billion in cash consideration funded with $7.3 billion of transaction debt and approximately $600 million of incremental cash proceeds from a public equity offering and/or divestitures. On a pro forma basis, Pinnacle Foods shareholders are expected to own approximately 16% of the combined company, assuming issuance of the incremental equity to the public. Following the transaction, Conagra Brands’ pro forma net debt-to-EBITDA ratio is expected to be approximately 5.0x. Conagra Brands is committed to maintaining a solid investment grade credit rating and targeting a debt-to-EBITDA ratio of 3.5x.

Conagra Brands intends to maintain its quarterly dividend at the current annual rate of $0.85 per share during fiscal 2019. In the future, it expects modest dividend increases while it focuses on deleveraging, subject to the approval of its board of directors. The company also plans to repurchase shares under its authorized program only at times and in amounts as is consistent with the prioritization of achieving its leverage targets.

Pinnacle Foods will continue to pay its quarterly dividend at the current annual rate of $1.30 per share until the transaction is completed.

The transaction is expected to close by the end of calendar 2018, subject to the approval of Pinnacle Foods shareholders, the receipt of regulatory approvals and other customary closing conditions.

Jones Day is advising Conagra Brands, Inc. with a team led by Peter E. Izanec (Picture) and Timothy P. FitzSimons.

The Cravath team is led by partners Robert I. Townsend III and Keith Hallam and includes associates C. Daniel Haaren, Matthew L. Ploszek, Devon A. Klein, Stephanie M. Park, Kathryn-Ann Stamm and Anthony J. Ramirez on M&A matters; partner Eric W. Hilfers, senior attorney Nicole F. Foster and associate Christopher C. Gonnella on executive compensation and benefits matters; partners Christine A. Varney and Margaret Segall D’Amico and associate A. Maya Khan on antitrust matters; partner Matthew Morreale and senior attorney Annmarie M. Terraciano on environmental matters; partner J. Leonard Teti II and associates Arvind Ravichandran and Rory M. Minnis on tax matters; and partner Craig F. Arcella and associate Virginie Marier on securities matters. Summer associates Yasmina Abdel-Malek and Karan Zoria also worked on M&A matters, and summer associate Christopher M. Hurley also worked on antitrust matters.

 

Involved fees earner: Robert Townsend III – Cravath Swaine & Moore; Keith Hallam – Cravath Swaine & Moore; Daniel Haaren – Cravath Swaine & Moore; Matthew Ploszek – Cravath Swaine & Moore; Devon Klein – Cravath Swaine & Moore; Stephanie Park – Cravath Swaine & Moore; Kathryn-Ann Stamm – Cravath Swaine & Moore; Eric Hilfers – Cravath Swaine & Moore; Nicole Foster – Cravath Swaine & Moore; Christopher Gonnella – Cravath Swaine & Moore; Christine Varney – Cravath Swaine & Moore; Margaret Segall D’Amico – Cravath Swaine & Moore; Maya Khan – Cravath Swaine & Moore; Matthew Morreale – Cravath Swaine & Moore; Annmarie Terraciano – Cravath Swaine & Moore; J. Leonard Teti II – Cravath Swaine & Moore; Arvind Ravichandran – Cravath Swaine & Moore; Rory Minnis – Cravath Swaine & Moore; Craig Arcella – Cravath Swaine & Moore; Virginie Marier – Cravath Swaine & Moore; Peter Izanec – Jones Day; Timothy FitzSimons – Jones Day;

Law Firms: Cravath Swaine & Moore; Jones Day;

Clients: Pinnacle Foods Inc.; Conagra Brands, Inc.;

 

Author: Ambrogio Visconti