A Conagra Brands Inc. (NYSE: CAG) acquisition of smaller rival Pinnacle Foods Inc. (NYSE: PF) would make strategic sense and create a more than $4 billion competitor in frozen foods.
That’s the view of J.P. Morgan analyst Ken Goldman, weighing in on a Reuters report from Wednesday that Conagra had approached Pinnacle with a view to a deal. The news sent Pinnacle’s shares up $4.06, or 6.5%. to $66.37 Thursday and boosted Conagra’s stock $1.19, or 3.1%, to $39.73, as the session neared its close.
Conagra Chief Executive Sean Connolly attempted to buy Pinnacle in the past when he was head of Hillshire Brands. That deal was scrapped when Tyson Foods bought Hillshire in 2014 after outbidding Pilgrim’s Pride Corp.
Goldman says a Conagra/Pinnacle tie-up is possible from a financial point of view too, given Conagra’s under-levered balance sheet. The company has said it wants to expand its frozen foods business, which is currently limited to just five brands.
Stifel analysts agreed that Conagra is open to deals, noting its recent acquisitions of Frontera, Duke’s and BIGS Seeds. The company’s balance sheet has leverage of less than 1.5 times and it has a $1.5-billion tax loss carry-forward that could lead to a remaking of its brand portfolio, they wrote in a note this week that predates the Reuters report.
Tuesday, Conagra announced it had entered into a definitive agreement with J.M. Smucker to divest the Wesson oil brand, a deal valued around $285 million.
