NEW YORK (AP) -- ConAgra Foods Inc. made a $4.9 billion bid for Ralcorp Holdings Inc., which the maker of Post cereal and store-brand products rejected Wednesday.
ConAgra has made two offers to acquire RalCorp in an effort to expand its business into private-label products.
Ralcorp said the $86-per-share bid from ConAgra is not in shareholders' best interests. It followed an $82-per-share offer in March that Ralcorp also refused.
The latest offer is a 3.2 percent premium over Ralcorp's most recent closing stock price of $83.33 but well below what some analysts estimate it could fetch.
Ralcorp's Chairman William Stiritz said the company has a proven track record of delivering shareholder value and the company is confident that its team and strategic plan will continue to do so as an independent company.
Ralcorp also said its board has adopted a shareholder rights plan, details of which are unavailable until it files it with regulators. Such a plan would reduce the likelihood a person or group could gather up shares to influence future decisions.
ConAgra's brands include Chef Boyardee and Slim Jim. Closing the deal would make the company the third-largest packaged food maker in the U.S.
"Ralcorp has made significant progress with its businesses, and we are excited about the prospect of building on its number one position in private label and enhancing its iconic brands, like Post, in very important categories," ConAgra CEO Gary Rodkin said in a statement.
Jonathan Feeney of Janney Capital Markets said in a client note that moving to an all-cash offer was likely an attempt by ConAgra to make the proposal more attractive. But the $86-per-share offer is still below Feeney's $98-per-share estimate for Ralcorp.
Shares of Ralcorp rose $4.06, nearly 5 percent, to close at $87.39 Wednesday. ConAgra's shares rose 76 cents, or 3.1 percent, to $25.51.
ConAgra disclosed in a letter to Stiritz that it made a call to Ralcorp in February to try to arrange a meeting to talk about a potential takeover. The company went on to say that its initial offer made in March was rejected by Ralcorp in a phone call April 1 and a rejection letter on Sunday
ConAgra also said Ralcorp has refused to meet to talk about a potential buyout and asked that the company allow it to hold discussions with senior management on its revised offer.
"We continue to be very interested in starting a dialogue," Rodkin said during a conference call.
ConAgra said it is still open to offering some stock as part of its bid if Ralcorp shareholders want a piece of the combined company.
"We're serious about pursuing this transaction and we see it as a big opportunity," Rodkin said.
The bid ConAgra submitted Wednesday also includes the assumption of $2.5 billion in debt. ConAgra, based in Omaha, Neb., says it would pay for the buyout with available cash and by issuing debt.
ConAgra said that combining its existing private-label business with Ralcorp's operations would create about $4 billion in combined annual private-label sales.
Standard & Poor's Ratings Service put both companies' ratings on watch for possible downgrades on the news. Moody's Investors Service also put ConAgra on watch for possible downgrade, saying the company's credit profile could be hurt if the deal proceeds, despite ConAgra's aim to maintain its investment grade status.
ConAgra likes Ralcorp's business mix, Rodkin said, which includes the popular Honey Bunches of Oats cereal. While the proposed Ralcorp transaction would help ConAgra capitalize on the growing private-label business in the U.S, he insisted that the company remains committed to its branded products as well.
"It's just one big piece of our growth strategy," Rodkin explained.
ConAgra expects the potential buyout would add to its earnings per share in the first year and produce about $250 million in annual cost savings by the third year after the deal closes.
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AP Business Writer Sarah Skidmore contributed to this report from Portland, Ore.
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