Chef Boyardee owner ConAgra makes huge $6.8-billion bet

ConAgra Foods Inc. makes some of the best-known packaged food brands around, including Chef Boyardee, Hebrew National, Hunt’s, Orville Redenbacher’s, Reddi-wip and Slim Jim.

But these days, the money is in private grocery store labels, such as Safeway’s Open Nature line and Albertson’s eponymous products. With its $6.8-billion purchase of Ralcorp Holdings, the largest producer of foods under such in-store brands, ConAgra is making a play to dominate the growing market.

ConAgra will give Ralcorp stakeholders $90 per share in cash, a 28.2% premium on the closing price on Monday. The $5 billion deal, which with debt assumption is valued at $6.8 billion, cleared both companies’ boards unanimously.

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Together, the businesses will bring in $18 billion in sales annually -- $4.5 billion from private labels -- while supporting 36,000 employees.

In Tuesday morning trading in New York, ConAgra shares increased as much as 4.8% to $29.66 a share. Ralcorp shares soared as much as 26.5% to $88.85 a share.

Ralcorp’s strength is in producing cereals, snacks, cookies, spreads, syrups, frozen baked goods and other items sold under grocery, drugstore and restaurant labels. With ConAgra’s existing $950-million private label business, the unified entity will become the largest maker of in-store branded foods on the continent.

Some 98% of American households use private label products on a regular basis, according to research firm NPD Group. Such goods made up 29% of food and beverages consumed in the country in the year ended February 2012, up from 20% a decade ago.

Sales of in-store branded consumables grew 5% each year between 2007 and 2011, compared with less than 1% for national brands, according to Ralcorp.

Private brands don’t come burdened with the advertising costs carried by most national brands while often being produced and distributed on a similar scale. Retailers are increasingly turning to such products for their attractive profit margins, while customers flocked to them for their affordability.

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