- Conagra Brands has reportedly approached Pinnacle Foods about acquiring the manufacturer of Gardein, Birds Eye, Hungry-Man and Mrs. Paul's, according to CNBC and Bloomberg.
- The two companies have had discussions in recent weeks, but there is no guarantee that a deal will be reached, according to Bloomberg, citing people familiar with the matter. A purchase price has not been publicly announced.
- Pinnacle Foods, which is under pressure by activist Jana Partners to sell itself or engage in another transformative deal, reportedly was in talks with Conagra about a merger last year before talks collapsed.
While the courtship between these two companies has been on-again, off-again for some time, it seems there are a number of factors that could increase the likelihood of a transaction taking place. Both companies are prominent players in the resurgent frozen food space, and Conagra could integrate Pinnacle's brands with its popular Banquet, Healthy Choice and Marie Callender's lines of products.
A merger would create the second-largest U.S. frozen foods company behind Nestle, CNBC said, citing RBC Capital Markets. Currently, Tyson Foods occupies the second spot with Tyson chicken products, as well as items sold under brands such as Jimmy Dean and Ball Park, according to IRI.The merged companies could save money on marketing, research and development, boost their negotiating power with grocery stores and potentially incorporate ideas from one company's brand into another.
Until a few years ago, frozen products languished. But big food companies have overhauled their brands to make them more snack friendly, incorporated more premium ingredients and trendy flavors, and updated the often antiquated packaging. A study by sales and marketing agency Acosta found last year that 26% of U.S. consumers are shopping the frozen foods department more frequently than they did in 2016. All generations reported buying more frozen food, but the increase was driven in large part by millennials — a favorable statistic providing support for companies to continue investing in the sector.
Sean Connolly, chief executive officer of Conagra, also has a history with Pinnacle. The current acquisition target was nearly purchased four years ago by Hillshire Brands — which Connolly was overseeing at the time — but Tyson Foods ended up buying Hillshire instead. Last June, it was reported that Conagra was considering purchasing Pinnacle. Since then, Jana Partners, the activist hedge fund that pushed for changes at Whole Foods before the grocer was sold to Amazon for $13.7 billion last year, has taken a 9.1% stake in Pinnacle.
Jana wrote in April that it intends to engage in discussions with Pinnacle Foods' board "regarding value creation measures" that could include "a sale or other consolidation opportunities" because of the company's prominent position in frozen foods.
For its part, Conagra has been active on the M&A front during the last year, but those deals have been small —focusing in large part on snacking areas where the company already has a presence. In March 2017, Conagra acquired Thanasi Foods, the upstart manufacturer behind Duke’s meat snacks and Bigs sunflower seeds for $218 million. Six months later, it spent $250 million to purchase Angie’s Boomchickapop.
"This is a big part of our strategy and will continue to be," Connolly told analysts attending the annual Consumer Analyst Group of New York conference in February. "M&A provides upside. When it comes to acquisitions, the key, of course, is [finding] that proper balance between being aggressive and being disciplined."
Prior reports indicate that Conagra is doing just that when it comes to Pinnacle. Jana has a way of agitating for action, and for Pinnacle, the most likely outcome appears to be a sale to Conagra or another larger frozen foods player such as Nestle or Kraft Heinz.