ConAgra private label products
ConAgra makes several varieties of private branded food for retailers to sell under their own brand names including baked goods, sauces and snacks.

OAK BROOK, ILL. — TreeHouse Foods has entered into an agreement to acquire most of ConAgra Foods’ Private Brands business for approximately $2.7 billion. The transaction is expected to be completed during the first quarter of 2016.

Sam Reed, TreeHouse Foods
Sam K. Reed, chairman and c.e.o. of TreeHouse Foods

“The union of TreeHouse and ConAgra’s Private Brands business establishes an industry leader in customer brands and custom products with significant scale, scope and skill and enables us to extend our reach in the grocery store by over 10 shelf stable and refrigerated food categories,” said Sam K. Reed, chairman and chief executive officer of TreeHouse Foods. “Importantly, the combination will also strengthen our ability to support our customers’ efforts to build their corporate brands and offer consumers the best combination of choice and value.”

ConAgra’s Private Brands business had sales of approximately $3.6 billion for the 12 months ended May 31. Once the acquisition is completed, TreeHouse Foods will have estimated sales of $7 billion, employ more than 16,000 and operate more than 50 manufacturing plants.

The boards of directors of both companies have approved the transaction, which is subject to antitrust regulations and other closing conditions. The purchase price of $2.7 billion is expected to be funded by a combination of $1.8 billion in new debt issuance and approximately $1 billion in equity stock issuance.

TreeHouse expects the transaction to be dilutive by 20c to 35c in adjusted earnings per share in year one, to contribute 55c to 70c per share in year two and to be accretive by $1.50 to $1.65 per share in year three. Investments to deconsolidate and integrate the Private Brands business, combined with the financing costs for the transaction, will exceed contributions from the Private Brands business in year one.  In years two and three, synergies will ramp up significantly, while costs to integrate the business will wind down. Synergies largely will be driven by procurement and supply chain optimization, according to the company.

ConAgra’s Private Brands business emerged out of its 2013 acquisition of Ralcorp Holdings for approximately $6.8 billion. The company struggled to make the acquisition work and earlier this year announced plans to divest the business.

Sean Connolly, ConAgra
Connolly, president and c.e.o. of ConAgra

“The sale of our private label business marks another important milestone as we remake ConAgra Foods into a focused, higher-margin, more contemporary and higher-performing company,” said Sean Connolly, president and c.e.o. “This transaction will enable ConAgra to sharpen our focus and resources on our Consumer Foods and Commercial Foods segments as we continue to move quickly to drive sustainable growth and deliver enhanced shareholder value.”

ConAgra Foods said it will retain certain private label operations with a connection to its existing Consumer Foods business, specifically canned pasta, cooking spray, peanut butter, pudding/gels, Gelit frozen pasta product offerings, as well as the HK Anderson and Kangaroo brand equity, trademark and business portfolios.

Following the transaction, ConAgra expects to have a capital loss carryforward of approximately $4.2 billion with an approximate tax value of $1.6 billion, which the company said may be used to offset potential future capital gains over the next five years. The company said it will provide greater detail regarding the transaction and what it means for the rest of the company going forward at a later date.