Citi Weights In On Post, ConAgra Merger Rumors

Post Holdings Inc POST has reportedly held talks with ConAgra Foods Inc CAG regarding merging with its frozen potato business, Lamb Weston. Among the main considerations in evaluating the possible merger is whether ConAgra would spin off or sell Lamb Weston, Citi’s Kevin Ziets said in a report.

Possible Transactions

The three scenarios of how ConAgra would divest Lamb Weston are in an all-cash deal, an all-stock deal or a partial stock deal. Analyst Kevin Ziets considers an all-cash transaction to be the worst case scenario, since it would take pro forma leverage up to ~5.5x.

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Ziets noted that Post Holdings’ track record of acquisition integration had improved significantly, and the company was able to achieve cost savings and generate free cash flow.

The proposed merger would make Post Holdings “the most significant scale players in HY food, with ~$8bn in sales and $1.7bn in EBITDA,” while the company’s leverage level would not be substantially more than that of other acquisitive names.

If the transaction with ConAgra did not come through, Post Holdings would likely look at alternative investments, including other names in the foodservice industry, such as AdvancePierre, the analyst mentioned.

Ziets reiterated an Overweight rating for Post Holdings.