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What's going on?
On Wednesday, Conagra Brands owner of Healthy Choice announced a deal to buy Pinnacle Foods for $11 billion. (tweet this)
What does this mean?
Pinnacle makes delicious frozen delights including Captain Birds Eyes famous fish fingers. Conagra hopes Pinnacles iconic brands will make it cooler in the frozen food market which has recently started growing again, after a few years of melting (partly because customers turned to fresh and organic food).
The acquisition will create a combined company with sales topping $11 billion second only to Switzerlands Nestl as the worlds largest producer of frozen foods.
Why should I care?
For markets: Stocks of both companies fell, perhaps peculiarly.
Typically, the stock of the company being bought (Pinnacle) increases because the buyer (Conagra) pays more than the market value to take it over. The buyers own stock often falls because theres no guarantee the acquisition will be successful. Conagras stock fell by 4% on Wednesday but so did Pinnacles. Its likely because Pinnacles investors are being paid in cash, plus an agreed amount of Conagras stock. So Conagras falling share price drags down Pinnacle with it, too and Pinnacles investors will end up receiving less overall.
The bigger picture: Somethings eating food companies.
On Monday, Campbell Soups shares rose by 9% following news that Kraft Heinz may want to buy the company, even though its struggling to grow its sales. Krafts owners have a reputation for efficiently slashing costs (theyve done it at Burger King) which could interest Campbells shareholders. Elsewhere on Tuesday, The J. M. Smucker Company updated some of its governance policies in a move that some investors believe will help the company look more attractive to would-be buyers.
Originally posted as part of the Finimize daily email.
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