TreeHouse Foods Inc. agrees to buy ConAgra Foods Inc.'s private-label unit for $2.7 billion
TreeHouse Foods Inc. is buying ConAgra Foods Inc.'s private-label unit for $2.7 billion. The deal will make TreeHouse Foods Inc. the largest US maker of store-brand groceries and test its potential to turn around an ill business.
In a statement on Monday, Oak Brook, Ill.-based TreeHouse said that the purchase will decrease the earnings per share by as much as 35 cents in the first year after the takeover, then adding as much 70 cents a share to profit in the second year. The company mentioned that the acquisition is like to close in the first quarter.
The acquisition will bulk up the operations of TreeHouse, with its expansion to over 50 manufacturing facilities, 16,000 employees and over doubling its yearly sales to about $7 billion.
But, TreeHouse will have to revive a business that got affected from management missteps since ConAgra purchased it from Ralcorp for almost $6.7 billion in 2013. TreeHouse shares fell as much as 9% in New York on rumors that improving the profitability of the division will be difficult.
Michael Halen, an analyst at Bloomberg Intelligence, said it was going to be a difficult turnaround for TreeHouse. Michael Halen added, “ConAgra has been losing customers due to fact that they cut sales force too deeply, took pricing too bluntly, and suffered supply-chain and customer-service issues. These missteps forced ConAgra to make pricing concessions to keep customers, and that has hurt margins”.
TreeHouse has fallen to as low as $77.83, the largest intraday fall since May 7, and slid $4.80, or 5.6%, to close Monday at $80.84.
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