Conagra Brands will pause on major M&A deals for the foreseeable future as it integrates the $10.9 billion takeover of Pinnacle Foods — a sweeping transaction that will boost the company's presence in the resurgent frozen space while giving it a stake in gluten-free and meatless categories increasingly popular with consumers, CEO Sean Connolly told Food Dive.
The deal, which was approved by Pinnacle shareholders Tuesday, will create a company with $11 billion in sales annually and bring frozen brands such as Banquet, Healthy Choice, Marie Callender's and Birds Eye under one roof. The combination, one of the largest purchases in Conagra’s 99-year history, creates a company that is the second-biggest U.S. frozen foods owner behind Nestlé. The acquisition is expected to close Oct. 26.
“For our company, we’re going to be focused on integrating this very well, focused on paying down debt and deleveraging," Connolly said earlier this month. "Being investment grade is very important to our company, so that is going to be our focus for the next few years, and after we do that and we get our leverage back down then we’ll be in a position to think about further reshaping from there, but for now we are focused in integration, executional excellence and deleveraging.”
Connolly, who took over the top post in 2015, has been instrumental during his tenure in shaping Conagra into a brands-oriented company focusing on core categories like frozen, snacks and grocery. Since Connolly assumed the helm, Conagra sold its private label business to TreeHouse Foods for $2.7 billion, spun off frozen potato company Lamb Weston, moved Conagra's headquarters to Chicago from Omaha and added a number of smaller complementary brands to its portfolio, such as Duke’s meat snacks and Angie’s Boomchickapop, through acquisitions.
"We basically had to start over. We're three, four years into it and everything is clicking," Connolly said. "In our mind, it's all about the innovation, and that's quite a difference from where we were."
Brittany Weissman, an analyst at Edward Jones, told Food Dive that Pinnacle gives Conagra a number of advantages, including "significantly more scale" in the frozen food aisle, overlap with brands that it can use to enhance its relationship with retailers and consumers, and the ability to use its innovation expertise on newly acquired Pinnacle products.
“Conagra has come a very long way over the last several years, really since Sean became CEO," Weissman said. "(Pinnacle) is something that has probably been well vetted, and they’ve kind of seen the complements in that business for a long time.”
“Our strategy is to stay close to home in our core categories of frozen, grocery and snacks, and so in this regard, (Pinnacle) is very much right in our wheelhouse and arguably a large bolt on. But scale-wise, access to the incremental platforms like vegetable, meatless, it is transformational and we’re excited about that.”
Sean Connolly
Chief executive officer, Conagra Brands
Connolly told Food Dive that Pinnacle not only increases Conagra's presence in frozen, but gives it access to many of the other hot trends infiltrating the food space. Brands added in the deal include plant-based Gardein, which Connolly said is growing quickly but has low household penetration; gluten-free bakery items from Udi’s and Glutino; and Evol's clean label and organic products.
The insight Conagra gleans from some of these newly acquired lines could lead the company to introduce new offerings into its longtime brands, including expanding its vegetable platform beyond Birds Eye, or adding gluten-free options to Healthy Choice, Connolly said.
“Our strategy is to stay close to home in our core categories of frozen, grocery and snacks, and so in this regard, (Pinnacle) is very much right in our wheelhouse and arguably a large bolt on,” he said. “But scale-wise, access to the incremental platforms like vegetable, meatless, it is transformational and we’re excited about that.”
