Kraft Foods said yesterday that it is selling its Post Cereal unit to cereal maker Ralcorp for a deal worth $2.6 billion.
The deal was made in part to help Kraft shed a slow-growing asset, the company said.
Post is the third-largest branded ready-to-eat cereal manufacturer in the U.S. next to Kellogg and General Mills. Its brands include Honey Bunches of Oats, Pebbles, Post Selects, Shredded Wheats, Honeycomb and Grape Nuts.
Under the agreement, Kraft will spin off Post and the business will be combined with Ralcorp, a private-label cereal and food maker. In turn, the consumer package goods firm will receive stock valued at $1.65 billion, and Ralcorp will assume the company’s $950 million in debt, bringing the total deal to about $2.6 billion. Kraft shareholders will own about 54% of Ralcorp when the deal is complete, the companies said.
Kraft said the deal would help the firm focus on its growth strategy and create “tax-efficient value” for shareholders.
“This is a transaction where everyone wins—Kraft, Ralcorp, our respective shareholders and employees,” Irene Rosenfeld, Kraft’s chairman and CEO, said in a statement. “Ralcorp has an excellent opportunity to continue building the Post brands, which have been known and loved by consumers for generations,”
In 2006, Post cereals generated $1.1 billion in sales.
For its part, Ralcorp said the merger would increase company sales by 50% to $3.3 billion a year, with Post cereals accounting for about 32% of total annual sales.
“The addition of Post cereals gives Ralcorp a truly distinctive line of branded cereal products plus a branded infrastructure and platform that we can build on through organic growth and acquisitions,” David P. Skarie, co-CEO and president, Ralcorp Holdings, said in a statement.
In other news, McCormick & Co. said it plans to acquire Lawry’s, a marinade and seasoning maker brand from Unilever for $605 million.
Lawry’s business includes seasoning products sold under the Lawry’s and Adolph’s brands, which account for about 65% of sales, and a line of wet marinades that make up 23% of its revenue.
The deal, which is expected to close in 2008, is part of Unilever’s plan to rid itself of non-strategic brands, the company said.
Annual sales of Lawry’s and Adolph’s products total about $150 million, according to news reports.
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