Pinnacle Foods Remains ConAgra's Most Likely Takeover Target

RBC Capital Markets think ConAgra Foods Inc CAG has the potentials to take over Pinnacle Foods Inc PF, which currently has a market cap of nearly $6 billion.

The firm believes that ConAgra has no alternative but to indulge in big-scale acquisition to strengthen the tag of pure-player and believes there is enough protection for its shareholders to do such.

Analysts David Palmer and Kevin Lehmann cited the following four key factors to support their argument that Pinnacle is the most likely takeover candidate:

1. Pinnacle is ready to sell itself.
2. ConAgra has complete knowledge of Pinnacle's business, citing management's history.
3. The integration between the two would prove to be highest synergies in the food sector.
4. The merger could add 16 percent to EPS based on the expected 50:50 stock and cash deal and a target price of $62 for Pinnacle.

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In a research, note, the brokerage said, "If Lamb Weston is ultimately spun off as planned in November, the new Conagra would have considerable flexibility to significantly transform its portfolio. Post spin-off, Conagra would be left with only 1–2 turns of debt and a $1.4 billion tax asset that can help the company sell an estimated $5–10 billion in market value tax free."

Therefore, RBC upgraded ConAgra shares from Sector Perform to Outperform and lifted the target price from $50 to $54. The firm thinks that the company also stands to gain from margin and fresh consumer focus.

At Time Of Writing ...

• ConAgra traded higher by $0.43, or 0.92 percent, to $47.35.
• Pinnacle traded at $50.56, up $0.96, or 1.94 percent.

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