ConAgra Sells Trading Group for $2.1 Billion

ConAgra Sells Trading Group for $2.1 Billion

ConAgra Sells Trading Group for $2.1 Billion

ConAgra Foods, Inc. announced Thursday that it planned to sell its commodities trading group to the Ospraie Special Opportunities fund for $2.1 billion in cash and stock.

 

The chief executive of ConAgra, Gary M. Rodkin, said he had decided to sell the trading group so the company could focus on its core consumer foods business and to take advantage of the current commodities market. He said most of the proceeds will be used to repurchase ConAgra stock.

 

“The deal is the right strategic step for us,” Mr. Rodkin said, “and the timing underscores our confidence in our core food businesses.”

 

ConAgra’s trading and merchandising group has increased the company’s profits and helped make up for disappointing sales of its consumer products, which also include Banquet, Orville Redenbacher and Egg Beaters. ConAgra’s trading and merchandising group buys and sells agricultural commodities, fertilizer and energy.

 

After the sale, which is expected to close within 60 days, the trading group will be renamed Gavilon. Nearly all 950 employees of the trading group will become part of the new company.

 

ConAgra will receive $1.6 billion in cash and $525 million in stock in the new Gavilon company as part of the sale. But the value of the deal could change based upon the book value of the trading group’s assets.

 

ConAgra will finance $525 million of the deal by accepting debt securities from Ospraie.

Mr. Rodkin said the sale of the trading group will not affect ConAgra’s long-term forecast of 8 to 10 percent growth in annual earnings per share.

 

The company also said that its third-quarter profit soared 60 percent as it raised prices and improved sales, beating Wall Street estimates, and increased its financial outlook for the full year.

 

ConAgra’s shares jumped $1.36, to $23.25 in morning trading.

In the third quarter ended Feb. 24, ConAgra reported net income of $309.1 million, or 63 cents per share. That’s up from $192.6 million, or 38 cents per share, a year ago when results were depressed by a recall of its Peter Pan peanut butter.

 

Revenue rose to $3.53 billion, up from $2.9 billion a year ago.

 

Analysts polled by Thomson Financial expect earnings of 39 cents a share on revenue of $3.17 billion.

 

Sales in the quarter grew for both ConAgra’s food and ingredients division and its consumer foods division. And the trading group again helped profits.

 

The food and ingredients division reported a 24 percent jump in sales to $1 billion in the quarter. That unit, which sells specialty potato, flour and flavor products, also recorded a $144 million pretax profit.

 

The trading group added $199 million to ConAgra’s pretax profits, which is more than three times higher than the $62 million pretax profit it delivered a year ago. The trading group was able to take advantage of soaring commodity prices, especially for wheat, during the quarter.

 

ConAgra’s consumer foods segment, which accounts for half its sales, delivered mixed results. Sales of those products grew, but pretax profits fell as costs continued to rise.

The company reported an 8 percent jump in sales of its consumer foods over last year’s third quarter. But last year’s third quarter was affected by the peanut butter recall, and ConAgra has made some small acquisitions since then. Excluding those unusual items, ConAgra said sales were up 6 percent.