Conagra Brands to buy Pinnacle foods for £6.15bn

The deal values Pinnacle at $68 (£51) a share

Foods production facility is seen in Oakdale, California (Reuters)

Pinnacle Foods Inc. is to be bought by Conagra Brands Inc. for approximately $8.1bn (£6.15bn) in cash and stock.

The move is expected to allow freezer-aisle brands such as Birds Eye to capitalise on growing demand for frozen foods.

The deal values Pinnacle at $68 (£51.60) a share, the companies said in a statement. The price is 23 percent above Pinnacle's closing level on April 19, when an activist investor disclosed a stake in the Parsippany, New Jersey-based company and began pushing it to sell itself.

Including assumed debt, the deal values Pinnacle at about $10.9bn (£8.29bn).

The purchase will give Chicago-based Conagra more exposure to one of the few bright spots in the grocery store: Frozen food sales are growing after years of decline. Even millennials, known for their foodie tastes, are embracing frozen meals, which are convenient and less expensive than takeout.

More than half of Pinnacle's revenue comes from frozen brands including Birds Eye, Van de Kamp's and the Gardein line of vegetarian products.

Pinnacle shares fell 3.5 percent to $65.50 (£49.75) in pre-market trading at 7 a.m. New York time. Takeover speculation had lifted the stock 28 percent from its low for the year on April 2, to a close Tuesday of $67.86 (£51.59), just below the takeover price. Conagra dropped 1.9 percent to $37.50 (£28.51).

The pressure on packaged-food makers to get bigger has intensified in the aftermath of Whole Foods Market Inc.'s sale last year to Amazon.com Inc. Frozen food, however, is considered relatively resistant to Amazon's push to get shoppers to buy more groceries online because they're tricky to deliver.

Activist fund Jana Partners urged Pinnacle to explore a sale after reporting a 9.5 percent stake in the packaged food maker in April. The New York-based hedge fund, run by Barry Rosenstein, said in a filing then that it thought the company was in a good position to consider consolidation given its strength in the frozen foods industry.

Jana also has history with Conagra, which in 2015 agreed to add two directors to its board in a settlement with the fund. It currently owns a stake in Conagra of less than 1 percent, according to data compiled by Bloomberg. Conagra's brands include Banquet, Marie Callender's and P.F. Chang's Home Menu.

Pinnacle holders will receive $43.11 (£32.77) in cash and 0.6494 of a Conagra share for each of their shares. The implied price of $68 (£51.69) is based on the average price for Conagra in the five days ended June 21.

Conagra also reported earnings for its fiscal fourth quarter. Net sales climbed 5.6 percent to $1.97bn (£1.5) in the three months ended May 27, compared with the average analyst estimate of $1.93bn (£1.47bn). Adjusted earnings from continuing operations totalled 50 cents, beating the average estimate of 44 cents.

Washington Post