Conagra to Buy Pinnacle Foods for $10.9B

The deal, expected to close at the of the year, will bring together complementary portfolios and create the second-largest U.S. frozen food company positioned to rival Nestlé and Kraft Heinz. The frozen food sector has experienced a resurgence thanks to more brands rolling out innovative products in response to consumer demand for healthier options.

“The addition of Pinnacle Foods’ leading brands in the attractive frozen foods and snacks categories will create a tremendous opportunity for us to further leverage our proven innovation approach, brand-building capabilities and deep customer relationships,” said Sean Connolly, president and CEO, Conagra Brands. “With greater scale across leading, iconic brands, an unwavering focus on driving profitable growth, and a strong balance sheet and cash flow, we are creating a tremendous platform to drive meaningful shareholder value.”

The two companies share complementary portfolios, supply chains and results-oriented cultures, which are expected to facilitate integration.

Pinnacle Foods’ portfolio of frozen, refrigerated and shelf-stable products includes the brands Birds Eye, Duncan Hines, Earth Balance, EVOL, Erin's, Gardein, Glutino, Hawaiian Kettle Style Potato Chips, Hungry-Man, Log Cabin, Tim's Cascade Snacks, Udi's, Vlasic and Wish-Bone, among others.

Dewey Warner, research analyst, Euromonitor International, said there has been quite a bit of attention lately on the renaissance happening in the frozen food aisle. “There has been an emphasis on the influence of fresh food and the growth in the outer perimeter of grocery stores, so a return to growth and interest in the center frozen aisles is notable. Most of this has to do with frozen food companies finally coming around to some self-reflection and altering the products they have relied on for so long in order to better meet consumers where they currently are (as opposed to consumer priorities suddenly shifting back toward processed frozen foods),” he said.

“That said, the trend toward fresh eating is still powerful and growing. While some of these frozen companies have experienced a resurgence in sales recently, I do think there are limits to how much these frozen categories can rebound. Revamping products to better align with consumer tastes and priorities is absolutely a path to growth in the frozen aisle, but it is not a surefire means to it for all frozen companies; I believe opportunities for growth are ultimately limited in this space. Combining the resources of Conagra and Pinnacle, along with their selections of recognizable and increasingly on-trend health-oriented brands (particularly Pinnacle’s), could help to solidify a portion of this potential growth for both companies and limit the growth potential of competitors, assuring that they can compete well with other large manufacturers, such as Nestlé, and that they fully capitalize on the opportunities that exist while they are available and aren’t left out.”

Dewey also noted Pinnacle’s advantage extends beyond just its frozen ready meals. “It has a huge presence, primarily through its Birds Eye brand, in frozen vegetables, which has increasingly included innovative and on-trend items such as riced vegetables and cauliflower items with bold flavors that are helping to fuel growth,” he said. “This has been further helped along by a migration for many consumers away from heavy consumption of fresh vegetables and toward leaning on frozen varieties, due to convenience and concerns about waste of fresh items.”

Pinnacle’s ownership of meat substitute brand Gardein, along with specialty gluten-free baked goods brands like Udi’s and Glutino, are a huge plus in reaching consumers in other fast-growing specialty areas that Conagra has been absent from.

The Conagra-Pinnacle deal could be one of many on the horizon. Campbell Soup Co.'s stock is on the rise amid speculation that Kraft Heinz and General Mills are interested in acquiring the struggling company. Just last month, Campbell’s CEO Denise Morrison abruptly retired from the position she had held since 2011. Morrison guided the soup giant’s strategic reorganization to better position the company to capitalize on the rapidly changing food industry landscape. In March 2018, Campbell’s completed its $6.1 billion acquisition of Snyder’s-Lance to increase its position as a leader in the snack food sector. The company also acquired Pacific Foods for $700 million in July 2017 to expand its natural footprint.

In June 2017, Amazon paid $13.7 billion in cash to acquire Whole Foods Market Inc., blockbuster deal that effectively changed the landscape of the grocery retail sector.