NORTHFIELD, Ill.-Nov. 15, 2007-Kraft Foods Inc, a global leader in branded food and beverages, announced today a definitive agreement to merge its Post cereals business into Ralcorp Holdings, Inc. a leader in private-label and frozen bakery products.
The transaction is tax-efficient and worth approximately $2.6 billion to Kraft and its shareholders. For purposes of comparison, to have achieved an equivalent amount in a taxable transaction, Kraft would have needed to receive approximately $4.0 billion in cash for the business.
The Post cereals business had net revenues of about $1.1 billion in 2006 and includes such popular cereals as Honey Bunches of Oats, Pebbles, Shredded Wheat, Selects, Grape Nuts and Honeycomb. The brands in this transaction are distributed primarily in North America.
"This is a transaction where everyone wins - Kraft, Ralcorp, our respective shareholders and employees," said Irene Rosenfeld, Kraft Chairman and CEO.
"Ralcorp has an excellent opportunity to continue building the Post brands, which have been known and loved by consumers for generations. Kraft shareholders will benefit from the future value created by combining the Post brands with Ralcorp. And Kraft is taking yet another step in the transformation plan that we laid out in February to restore the company to reliable growth."
The transaction has several benefits for Kraft and its shareholders:
It will better enable Kraft to focus its resources on its growth strategy;
Value for Kraft shareholders will be optimized through a tax-efficient structure;
Kraft shareholders will own 54 percent of the new Ralcorp; and
Ralcorp will benefit by combining Post's strong branded assets with its private-label business and infrastructure.
In addition to the Post brands, the transaction includes four manufacturing facilities -- Battle Creek, Mich.; Jonesboro, Ark.; Modesto, Calif.; and Niagara Falls, Ontario -- and certain manufacturing equipment. Kraft anticipates that approximately 1,250 employees will join Ralcorp.
"We are grateful for the hard work and dedication of our talented employees who helped build Post into a billion-dollar brand," said Rosenfeld. "We wish them much continued success as they join the Ralcorp family."
About the Deal
Kraft shareholders will receive at least 30.3 million shares of Ralcorp stock at closing, and Kraft will receive approximately $960 million of cash-equivalent value. In total, this transaction represents proceeds of approximately $2.6 billion to Kraft and its shareholders (based on Ralcorp's closing stock price of $55.47 on November 14, 2007).
Kraft shareholders will receive Ralcorp shares after the distribution and subsequent merger of the Post cereals business with Ralcorp. Based on market conditions prior to closing, Kraft will determine whether the shares will be distributed in a spin-off or a split-off transaction. Either type of transaction would be tax-free to Kraft shareholders. In a spin-off transaction, all Kraft shareholders would receive a pro rata number of shares. In a split-off transaction, Kraft shareholders would have the option to exchange their Kraft shares and receive Ralcorp shares at closing, resulting in a reduction in Kraft's shares outstanding.
In a spin-off, Kraft's earnings per diluted share would be adjusted downward by $0.13 on an annual basis. From a Kraft shareholder perspective, this is largely offset by the earnings attributable to ownership of Ralcorp stock. In a split-off, Kraft expects earnings dilution on an annual basis would be approximately $0.07 per diluted share.
Kraft and Ralcorp expect to complete the transaction in mid-2008. The transaction is subject to customary closing conditions, including regulatory and Ralcorp shareholder approvals.