ConAgra Foods Inc (NYSE:CAG) announced that it is pulling the plug on its struggling private brand unit.
The company had spent $5 billion to purchase the unit from Ralcorp Holdings, Inc. (NYSE:RAH) a few years ago. ConAgra decided to dispose the private-label foods business after failing to integrate the unit into its core business. The company reduced the nominal value of the private label unit to a $1.3bn goodwill in 2014 after experiencing lower than expected sales and profit values.
ConAgra also announced that the decision to sell the unit was as a result of pressure from investor Jana Partners. The latter has a significant influence on the company because it has summed up a 7% share ownership in ConAgra. Jana Partners has also been pushing to take up a place on the company’s board so that it can address the constant deficits.
ConAgra’s Chief Executive, Sean Connolly described the poor performance of the private brands as a result of inefficient resource allocation. He said the company did not give the unit the maximum resources in terms of time and energy. The company vowed to redirect its attention to commercial and consumer foods business where profits have been admirable and on the rise. The private bands unit registered an operating loss of $25 million as a result of the restructuring efforts.
Jana’s managing partner Barry Rosenstein announced the organization is ready to work towards positive growth as ConAgra seeks to follow a new direction. The efforts will point towards improving the firm’s capital allocation as well as its margins through healthier cost controls.
ConAgra Foods Inc (NYSE:CAG) consented to a $90 a share in a cash deal with Ralcorp in 2012. The company also agreed to assume a $1.8bn debt from Ralcorp. The mergers and acquisitions trend has been rampant particularly in the Pharmaceuticals industry this year. The food industry has been on the reverse trend thus calling for consolidation especially due to changing consumer tastes and preferences.