ConAgra contends that it had sent Ralcorp a presentation that included the benefits of joining forces after offering $94 a share for the company, which represents about a 19% premium over its closing price yesterday. But ConAgra said it hadn't yet gotten a reply from the Missouri-based food maker.
However, Ralcorp's repeated refusal to see merit in the ConAgra offer has frustrated Ralcorp's shareholders, too. ConAgra has capitalized on that frustration, pointing out that a number of Ralcorp shareholders are in favor of the deal.
Ralcorp clearly needs to come up with a reply to the offer or somehow manage to placate its increasingly dissatisfied shareholders. Currently, the company is looking to spin off its Post Foods segment as a way to create more value for its shareholders.
Rising input costs and a slow economic recovery have weighed on ConAgra's sales. Stiff competition from Campbell Soup
In the last 12 months, ConAgra's revenues have shown only a marginal increase of 2.4%. Ralcorp, on the other hand, has seen 19% sales growth in the same period. ConAgra finds Ralcorp's $4.6 billion in revenue attractive as a way to grow through acquisition.
Along with increasing sales, Ralcorp would help ConAgra increase its presence in the store-brand foods segment. This business has grown considerably since the recession as cash-strapped consumers have been on the hunt for cheaper deals. Last year, Ralcorp generated a huge piece of its revenue -- $3 billion -- from selling cereals, cookies, and pasta under different retailers' own brands.
The Foolish bottom line
If Ralcorp doesn't respond soon to ConAgra's offer, it runs the risk of disappointing investors. ConAgra believes that the deal will benefit Ralcorp's shareholder more than the spinoff that Ralcorp plans to undertake. It remains to be seen whether Ralcorp will respond to the offer within the deadline that ConAgra has set, or whether it's able to come out with a Plan B. We will have to wait and see.
To keep a close watch on the developments of the Ralcorp-ConAgra deal, add these stocks to your watchlist.
Fool contributor Shubh Datta doesn't own any shares in the companies mentioned above. Motley Fool newsletter services have recommended buying shares of H.J. Heinz. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.