When the agreement was announced late in 2007 for Ralcorp Holdings, Inc. to acquire the Post cereal business from Kraft Foods, Irene Rosenfeld, chairman and chief executive officer of Kraft, could hardly be more optimistic.
“This is a transaction where everyone wins — Kraft, Ralcorp, our respective shareholders and employees,” she said. “Ralcorp has an excellent opportunity to continue building the Post brands.”
With the benefit of hindsight, it is clear that matters did not work out nearly so neatly. Post already was languishing as a brand owned by Kraft, a situation Ralcorp never reversed. When Post was split off by Ralcorp as a publicly traded company last week, its value was about 40% less than where it was in 2008 when Ralcorp bought the business. To whatever degree Kraft shareholders who received Ralcorp stock did well since the transaction, it was not because Ralcorp achieved success with Post. Tax-advantaged transactions,stock deals often are preferred to cash acquisitions.
The Post experience and last week’s debacle involving a financial scandal at Diamond Foods, which nearly acquired the Pringles brand of Procter & Gamble Co., offer a stern reminder that when it comes to stock transactions, the risks to sellers generally do not go away once a decal closes.