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ConAgra deal: A case of delayed gratification

Boardroom egos can hamper deals that would benefit shareholders. Ralcorp, a U.S. white-label food producer, looks a case in point. It flipped suitor ConAgra the bird nearly two years ago. With its formerly reluctant chairman now running a spinoff, the company is finally selling to the maker of Chef Boyardee gruel for $5-billion (U.S.) or $90 a share – close to the per-share price it probably could have negotiated with ConAgra before. At least investors got a second chance this time.

Social issues that can derail or diminish the value of beneficial mergers can be obvious emotional attachments, such as when a founder-executive resists selling his creation. More often they're power struggles between rival executives over who will run a larger combined enterprise.

Ralcorp offers a variation. ConAgra first approached the company quietly in February, 2011, offering $82 a share. It went public with an offer of $86 a share that May. Ralcorp chairman William Stiritz kept on saying no, even to a negotiation. ConAgra eventually raised its bid to $94 before giving up. From the get-go, however, the numbers suggested ConAgra could justify paying $100 or more for each Ralcorp share, partly thanks to an expected $250-million of annual cost savings.

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Instead of negotiating a sale, Ralcorp in February this year spun off the Post cereals business it had acquired not long before. Shareholders received one new share in the Fruity Pebbles and Grape-Nuts maker for every two Ralcorp shares. Based on Post Holdings' first day of trading, that was worth about $13 a share for Ralcorp owners.

The move also gave Mr. Stiritz a new job. In addition to serving as Ralcorp's chairman, he was named chief executive of the spinoff. After ConAgra buys Ralcorp, he will lose the chairman's spot, but he'll still get to call the shots at Post. Having played a senior role at Ralcorp and its pre-spinoff parent for decades, it's perhaps not surprising he kept ConAgra at bay until he had another job to do.

That could have cost Ralcorp shareholders an opportunity to sell at a premium, but on this occasion they will make out fine. They're getting $90 a share in cash from ConAgra. Add the value of Post at its spinoff – now higher, as it happens – and they're getting a total of $103 against ConAgra's $94 offer last year. It's a rare result that massages both shareholders' wallets and executive egos.

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