ConAgra's Losing Its Patience

ConAgra (NYSE: CAG) is getting impatient with Ralcorp Holdings' (NYSE: RAH) repeated refusal to enter into negotiations for a proposed takeover. ConAgra first announced its intention to acquire Ralcorp back in March. However, Ralcorp has constantly underplayed ConAgra's takeover bid. Apparently, not willing to stretch the negotiations any longer, ConAgra earlier this week threatened to walk away from its proposed $5.18 billion offer. The food maker's ultimatum gives Ralcorp until Monday to enter into negotiations or be left behind.

What's happening?
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.

Why Ralcorp?
Rising input costs and a slow economic recovery have weighed on ConAgra's sales. Stiff competition from Campbell Soup (NYSE: CPB) and Heinz (NYSE: HNZ) in the packaged-foods segment have also hurt sales. To boost revenue, ConAgra has decided to focus on store-oriented private-label brands, and that is exactly where Ralcorp fits in.

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.