Ralcorp plans spin-off of Post Foods

by Jeff Gelski
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ST. LOUIS – The board of directors of Ralcorp Holdings, Inc. unanimously has agreed in principle to separate Ralcorp and Post Foods in a tax-free spin-off to Ralcorp shareholders, the St. Louis-based company said July 14.

As part of the separation, Post Foods will issue between $1.1 billion to $1.2 billion of debt with the net cash proceeds of about $1 billion going to Ralcorp. Ralcorp’s board of directors intends to use the proceeds to reduce debt, pursue private brand acquisitions and pursue additional share repurchases under the company’s remaining share repurchase authorization of about 5 million shares.

Following completion of the transaction, Ralcorp will continue to trade on the New York Stock Exchange, and Post Foods also is expected to be listed on the N.Y.S.E. Upon completion of the separation, William P. Stiritz, currently chairman of Ralcorp, will serve as chairman of Post Foods. J. Patrick Mulcahy, currently vice-chairman of the Ralcorp board, will serve as chairman of Ralcorp.

“The board has been carefully evaluating tax-free separation alternatives for some time,” Mr. Stiritz said. “We firmly believe the separation of Post Foods from Ralcorp by way of a tax-free spin-off will unlock significant value for our shareholders. As independent companies, both Ralcorp and Post Foods will be better positioned to focus on strategies specific to their particular businesses, thereby improving the opportunities to deliver increasing shareholder value.

“I am excited to have the opportunity to lead the board of Post Foods as an independent public company and believe that the focus and accountability of being a standalone branded public company will lead to the business generating better results. The margin and cash flow profile of Post Foods is quite different than Ralcorp’s private branded business, and there are many unique development opportunities for this business.”

In another executive move, Dave Skarie, co-chief executive officer and president of Ralcorp, will retire from Ralcorp, effective Dec. 31. He will be responsible for leading the separation of Post Foods from Ralcorp.

Kevin Hunt, co-c.e.o. and president of Ralcorp, will become c.e.o. and president of Ralcorp upon completion of the separation. Ron Wilkinson, corporate vice-president and president, Ralcorp Cereal Products, will continue as corporate vice-president and president of Ralston Foods and Bloomfield Bakers after the separation.

Ralcorp expects to complete the separation in four months to six months, following the receipt of an Internal Revenue Service tax ruling and/or satisfactory legal opinion as to the tax-free nature of the transaction, final approval by the Ralcorp board of directors and other customer conditions. The transaction does not require approval from Ralcorp shareholders.

Post Foods had net sales of $958 million in the 12 months ended March 31, as well as segment profit of $223 million and adjusted EBITDA of $280 million. The third-largest branded ready-to-eat cereal manufacturer in the United States, Post Foods has such brands as Honey Bunches of Oats, Pebbles, Post Great Grains, Post Shredded Wheat, Grape-Nuts and Post Raisin Bran.

The company purchased the Post cereals business from Kraft Foods Inc. in 2008. The merger was valued at approximately $2.6 billion.

Also on July 14, Ralcorp said it expects diluted earnings per share for the third quarter to be between 85c and 90c. The company plans to give full results for the quarter ended June 30 on Aug. 9.

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