ConAgra Foods Inc. moves to split up the company again this year. In an unexpected announcement from CEO Sean Connolly, the food conglomerate is spinning off its frozen potato products company, Lamb Weston.
The Wall Street Journal reports ConAgra and Lamb Weston will split into two separate public companies. ConAgra will be renamed ConAgra Brands while Lamb Weston, which sells frozen potato products to commercial customers, will keep the name and operate on its own.
Connolly thinks splitting from Lamb Weston will enable both companies to grow individually, allowing them the flexibility to take advantage of unique opportunities within their respective marketplace.
“Clearly, as a company, we’ve had a lot of different things going on and competing for management’s attention. By creating two pure-play companies, we are best positioning each to compete. Shareholders will gain direct exposure to more focused consumer and commercial foods businesses, each with distinct customer bases and investment profiles.”
Connolly said the split is part of a larger plan to make the newly named ConAgra Brands a leaner, more focused company. Under his leadership, there is much to do inside the company to improve but will continue to leave options open.
“But of course, we’ll always be open to new additions that can modernize and enhance the portfolio,” he told CNBC.
This may be a hint that ConAgra Brands wants to add to its already large consumer foods business. Some analysts are looking at frozen food maker, Pinnacle Foods Inc., as a possible acquisition target. When Connolly was head of Hillshire Brands Co. in 2014, he tried to buy Pinnacle, but the deal ultimately fell through when Hillshire was sold to Tyson Foods Inc.
Connolly is being quiet about any possible ConAgra future acquisitions, and some experts say it wouldn’t make sense for the Slim Jim producer to make any more large moves right now.
With a slightly smaller, more dedicated company, ConAgra will be looking for ways to add value to its existing product lines like Peter Pan peanut butter, PAM cooking spray, Hebrew National hot dogs, and Chef Boyardee. Additionally, the company plans to enhance its natural and organic food lines as well as revamp its premium and gourmet brands like Healthy Choice.
In addition to splitting from Lamb Weston, ConAgra made some other moves to get the company more focused and profitable.
Earlier this month, ConAgra spun off its private label business. In a deal worth $2.7 billion, Treehouse Foods Inc., which makes foods for in-house grocery store brands, purchased ConAgra’s floundering Ralcorp. ConAgra purchased Ralcorp less than three years ago and has been unable to turn a profit in the private brands segment.
In October, Connelly also cleaned house by laying off 30 percent of its workforce. As reported previously by the Inquisitr, ConAgra cut 1,500 jobs and moved its headquarters from Omaha, Nebraska, to Chicago, Illinois. However, the layoffs were limited to only office personnel and no workers in food production plants were let go.
The consumer foods business, which will be the majority of ConAgra’s business after the split, had operating profit margins of 14.6 percent in its fiscal year. On the other hand, Lamb Weston’s margin was 12.7 percent for the commercial foods business.
After ConAgra announced the Lamb Weston spinoff, investors rallied sending the stock up 4 percent to $40.93 on Wednesday. The deal will be structured as a tax-free spinoff.
ConAgra shareholders will own stock in both companies once the split is completed in late 2016. However, some investors are worried Lamb Weston will be acquired by another company very quickly.
Lamb Weston brought in almost $2.9 billion in fiscal 2015. The frozen potato company has yet to put a new management plan in place, but it will continue to operate out of their Pacific Northwest headquarters after the split from ConAgra.
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