ConAgra to sell private brands to TreeHouse

ConAgra Foods on Monday said it would sell its private-label foods unit to TreeHouse Foods for $2.7 billion, after struggling to turn around the business it acquired just two years ago.

Omaha-based ConAgra, the maker of Slim Jim beef jerky and Chef Boyardee pasta, became the biggest maker of private label foods in the United States after it bought Ralcorp for $5.1 billion in 2013.

But the business has been plagued by integration costs and customer service issues as well as low profit margins due to cut-price deals Ralcorp made before it was acquired.

TreeHouse, which will become the No. 1 private-label food manufacturer in the United States after the deal, said it would fund the cash transaction with about $1.0 billion in stock and $1.8 billion in new debt.

TreeHouse said it would have pro forma sales of nearly $7 billion and adjusted earnings of about $690 million before interest, taxes, depreciation and amortization following the deal, which it expects to close in the first quarter of 2016.

In a conference call with analysts, company executives said the deal would give the combined entity a presence in more than 20 product categories and result in savings in procurement and transportation.

The company said it expected the acquisition to reduce earnings before special items by 20 cents to 35 cents per share in the first year after closing but add 55 cents to 70 cents in the second year.

ConAgra said it expected the deal to result in a capital loss carryforward of about $4.2 billion with an approximate tax value of $1.6 billion, which can be used to offset future capital gains over the next five years.

ConAgra Foods operates a plant at 601 16th St. NE in Cedar Rapids that employs about 130 people producing private label oatmeal products. The company in June was awarded tax benefits through Iowa's high-quality jobs program for a $10 million capital investment.

ConAgra planned to install a packaging system upgrade that included machines for vertical pouches and top-load cartons.

The sale to TreeHouse Foods includes a network of 32 manufacturing facilities in the U.S., Canada and Italy.