November 3, 2015

In a deal that will result in the largest U.S. maker of store-brand foods, ConAgra has agreed to sell its private-label unit to Illinois-based TreeHouse Foods Inc. for $2.7 billion.

In the first year after the acquisition, the deal is expected to reduce earnings per share by up to 35 cents per share, and in the second year after the acquisition, by as much as 70 cents per share.

Only three months after accepting the position of chief executive officer at ConAgra, Sean Connolly announced in June that the group was seeking a buyer for its private label unit after being pressured by activist investor Jana Partners, who criticized ConAgra’s management of the division.

The deal will expand TreeHouse’s operations by 50 manufacturing facilities and 16,000 employees, and will more than double the company’s annual sales to nearly $7 billion. But the acquisition will also pose a significant challenge to TreeHouse, which will have to work to turn the business around after multiple management errors by ConAgra in the short period of time since it acquired the unit from Ralcorp for $6.7 billion in 2013.

"It will be a tough turnaround for TreeHouse," said Michael Halen, an analyst at Bloomberg Intelligence. "ConAgra has been losing customers due to the fact that they cut the salesforce too deeply, took pricing too bluntly, and suffered supply-chain and customer-service issues. These missteps forced ConAgra to make pricing concessions to keep customers, and that has hurt margins."

TreeHouse CEO, Sam Reed said that a key change in management of the unit will be that TreeHouse will focus exclusively on private labels, as opposed to ConAgra, which encountered troubles through its attempts to integrate the private label business with its branded unit.

Since being spun off from Dean Foods in 2005, TreeHouse has expanded through a string of acquisitions, completing 13 deals over the ten years at a value of $2.7 million according to Bloomberg.

Morgan Stanley and Bank of America Corp. have been appointed financial advisors to TreeHouse and Winston & Strawn is acting as legal counsel to TreeHouse for the deal which is expected to close in the first quarter of 2016. Goldman Sachs and Centerview Partners have been appointed advisors to ConAgra, and Davis Polk & Wardwell is acting as its legal counsel.