Conagra Brands Inc. and Pinnacle Foods Inc. announced June 27 that their boards of directors have unanimously approved a definitive agreement under which Conagra Brands will acquire all outstanding shares of Pinnacle Foods in a cash and stock transaction valued at approximately $10.9 billion, including Pinnacle's outstanding net debt.

"The acquisition of Pinnacle Foods is an exciting next step for Conagra Brands. After three years of transformative work to create a pure-play, branded food company, we are well positioned to accelerate the next wave of change," Conagra Brands president and chief executive officer Sean Connolly said. "The addition of Pinnacle Foods' leading brands in the attractive frozen foods and snacks categories will create a tremendous opportunity for us to further leverage our proven innovation approach, brand-building capabilities and deep customer relationships. With greater scale across leading iconic brands, an unwavering focus on driving profitable growth and a strong balance sheet and cash flow, we are creating a tremendous platform to drive meaningful shareholder value."

Under the terms of the transaction, Pinnacle shareholders will receive $43.11 per share in cash and 0.6494 shares of Conagra Brands common stock for each share of Pinnacle Foods held. The implied price of $68.00 per Pinnacle Foods share is based on the volume-weighted average price of Conagra Brands' stock for the five days ended June 21, 2018. The purchase price reflects an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) multiple of 15.8x, based on Pinnacle's estimated fiscal 2018 results excluding synergies, and 12.1x adjusted EBITDA including run-rate cost synergies.

The combination of two growing portfolios of iconic brands will serve as a catalyst to accelerate value creation for shareholders, Conagra said. The transaction will enhance Conagra's multiyear transformation plan and expand its presence and capabilities in its most strategic categories, including frozen foods and snacks. With annual net sales in excess of $3 billion, Pinnacle's portfolio of frozen, refrigerated and shelf-stable products includes such well-known brands as Birds Eye, Duncan Hines, Earth Balance, EVOL, Erin's, Gardein, Glutino, Hawaiian Kettle Style Potato Chips, Hungry-Man, Log Cabin, Tim's Cascade Snacks, Udi's, Vlasic and Wish-Bone, among others. Based on both companies' latest fiscal year results, pro forma net sales would have been approximately $11 billion.

"Today's transaction provides Pinnacle Foods shareholders with substantial and immediate value as well as the opportunity to participate in the significant upside potential of the combined company," Pinnacle Foods CEO Mark Clouse said. "Because of our employees' incredible work, Pinnacle's total shareholder return is approximately 275% since our [initial public offering], and today marks an important milestone in the company's journey. The portfolios and capabilities of both enterprises are impressive and complementary. We look forward to working through a seamless transition with the Conagra Brands team."

Financial details

Conagra Brands has secured $9.0 billion in fully committed bridge financing from affiliates of Goldman Sachs Group Inc. The $10.9 billion purchase price is expected to be financed with $3.0 billion of Conagra equity issued to Pinnacle shareholders and $7.9 billion in cash consideration funded with $7.3 billion of transaction debt and approximately $600 million of incremental cash proceeds from a public equity offering and/or divestitures. On a pro forma basis, Pinnacle shareholders are expected to own approximately 16% of the combined company, assuming issuance of the incremental equity to the public. Following the transaction, Conagra's pro forma net debt-to-EBITDA ratio is expected to be approximately 5.0x. Conagra is committed to maintaining a solid investment grade credit rating and targeting a debt-to-EBITDA ratio of 3.5x.

Conagra intends to maintain its quarterly dividend at the current annual rate of 85 cents per share during fiscal 2019. In the future, it expects modest dividend increases while it focuses on deleveraging, subject to the approval of its board of directors. The company also plans to repurchase shares under its authorized program only at times and in amounts consistent with the prioritization of achieving its leverage targets.

Pinnacle will continue to pay its quarterly dividend at the current annual rate of $1.30 per share until the transaction is completed.

The transaction is expected to close by the end of the 2018 calendar year, subject to the approval of Pinnacle shareholders, the receipt of regulatory approvals and other customary closing conditions.