ConAgra\'s Chief Emphasizes the Lure of Private-Label Brands

It may have taken a year and a corporate spinoff, but ConAgra has succeeded in buying Ralcorp, for about $5 billion.

And it couldn't have come soon enough for ConAgra's chief executive, Gary Rodkin, who sees Ralcorp's strength in selling food under various customers' brands as an important part of his own company's future.

The deal comes more than a year after ConAgra walked away from a $5.2 billion offer for Ralcorp, which had repeatedly insisted on remaining independent and divesting its Post cereals division as a better way of generating returns for its shareholders. Even though he is now technically paying more for Ralcorp, which spun off Post in February, Mr. Rodkin argued that the strategic rationale for buying the company remained in place.

“Then was then and now was now,” he told DealBook in a telephone interview on Tuesday. “The deal was very attractive for us now.”

Behind the deal was a desire to expand ConAgra's existing private l abels business, which generates about $950 million in annual sales. The combined company will have an estimated $4.5 billion in annual revenue from generic brands, which are resold by customers like Trader Joe's and Costco under their own brands.

In fact, Mr. Rodkin said, such companies are the fastest-growing retailers in the food space - and are very focused on a strategy built on selling proprietary brands.

At the same time, Ralcorp can benefit from the bigger presence that ConAgra has with retailers and its more powerful sales channels. Mr. Rodkin estimates that the combined company will have about $225 million in cost savings, and that the deal will begin adding to its earnings per share in its 2013 fiscal year.

“This is something that makes so much sense,” he said. “Within our own management team and our own board, it just seemed so compelling, from both a strategic and financial perspective.”

For now, ConAgra will focus on reducing the debt that it will take on through the transaction. It's an important goal, with Mr. Rodkin emphasizing that his company will retain its investment-grade credit rating.

But after perhaps two years, ConAgra will again look to deal-making to bolster its businesses. It had already struck a number of deals between last year's withdrawn offer for Ralcorp and Tuesday's announcement, and in Mr. Rodkin's estimation integrated them well.

In the future, he added, the company will look for potential acquisitions whose value comes from increasing sales, instead of merely adding to ConAgra's profit through the promise of cost savings.

“We're looking for things that have tailwinds for the long term,” he said.