US-based packaged food company ConAgra Foods has signed an agreement to sell its private label operations to TreeHouse Foods for $2.7bn in cash, which excludes transaction expenses.
Under the agreement terms, ConAgra Foods will sell majority of its private label businesses, which have been classified as discontinued operations.
ConAgra will retain certain private label operations which have a strong impact on its consumer foods business with product offerings such as cooking spray, peanut butter, canned pasta, puddings and gels, Gelit frozen pasta, the HK Anderson and Kangaroo brand equity, trademark and business portfolios.
With the sale proceeds, the company intends to reduce debt. The transaction completion is subject to certain customary approvals and regulatory clearances and is expected to be completed in the first quarter of 2016.
ConAgra Foods president and CEO Sean Connolly said: The sale of our private label business marks another important milestone as we remake ConAgra Foods into a focused, higher-margin, more contemporary and higher-performing company.
"This transaction will enable ConAgra to sharpen our focus and resources on our Consumer Foods and Commercial Foods segments as we continue to move quickly to drive sustainable growth and deliver enhanced shareholder value."
Connolly continued: "We are confident that the private label business will be in good hands with TreeHouse Foods, and better-positioned to reach its full potential as part of a focused private label company."
TreeHouse Foods chairman and CEO Sam Reed said: "The union of TreeHouse and ConAgra's private brands business establishes an industry leader in customer brands and custom products with significant scale, scope and skill and enables us to extend our reach in the grocery store by over 10 shelf stable and refrigerated food categories. Importantly, the combination will also strengthen our ability to support our customers' efforts to build their corporate brands and offer consumers the best combination of choice and value."
After the completion of the sale transaction, ConAgra Foods expects to carry forward a capital loss to the tune of $4.2bn with an estimated tax value of $1.6bn. It expects to use the tax benefit to balance the potential future capital gains over the next five years.
The acquisition of ConAgra's private brands operations will help expand TreeHouse's presence in private label dry and refrigerated grocery.
After the acquisition, TreeHouse will have pro forma sales of close to $7bn and adjusted EBITDA of approximately $690m. On completion of the transaction, TreeHouse will own more than 50 manufacturing facilities and over 16,000 employees.
Image: ConAgra will retain its canned pasta private label. Photo: Courtesy of Nujalee/FreeDigitalPhotos.net.