Ralcorp Holdings Inc. said Thursday that it plans to spin off cereal maker Post Foods to focus on building its generic foods business.
Ralcorp, which makes foodservice products and store-brand foods for grocers and other retailers, expects to complete the tax-free split in four to six months.
Post Foods is the third-largest U.S. maker of name-brand cereals, with products such as Honey Bunches of Oats, Grape Nuts and Post Raisin Bran.
Ralcorp, based in St. Louis, acquired Post Foods in 2007 from Kraft Foods Inc. for roughly $1.7 billion.
After the markets closed Thursday, Ralcorp also lowered its earnings outlook, and its shares fell more than 5 percent in after-hours trading.
Under the deal Ralcorp announced, Post Foods will issue up to $1.2 billion in debt and turn over the net proceeds of roughly $1 billion to Ralcorp. Ralcorp said it will use the money to pay down its own debt, repurchase shares and pursue acquisitions. Both companies are expected to be publicly traded on the New York Stock Exchange following the split.
Ralcorp's business making store-brand foods provided most of its revenue in its most recent fiscal year _ $3.5 billion, versus $958 million for Post products. The company has drawn attention recently from ConAgra Foods Inc., based in Omaha, Neb., which has bid for it twice, most recently offering $4.9 billion in May, a deal Ralcorp rebuffed.
In a statement after Ralcorp's announcement, ConAgra said it still believes its proposed acquisition is in the best interests of Ralcorp's shareholders.
Ralcorp Chairman William P. Stiritz said the company has been evaluating a split for some time.
"We firmly believe the separation of Post Foods from Ralcorp by way of a tax-free spinoff will unlock significant value for our shareholders," he said in a statement. "As independent companies, both Ralcorp and Post Foods will be better positioned to focus on strategies specific to their particular businesses, thereby improving the opportunities to deliver increasing shareholder value."
One of Ralcorp's co-chief executives and co-presidents, David Skarie, will retire at the end of the year after supervising the spinoff, leaving the other co-CEO and co-president, Kevin Hunt, as sole chief executive and president of Ralcorp. Stiritz will become chairman of Post Foods, while J. Patrick Mulcahy, Ralcorp's vice chairman, will become chairman of Ralcorp.
Ralcorp has managed to improve its profitability recently with cost controls, acquisitions and higher prices to offset rises in ingredient costs. In its most recent quarter, the company's net income rose 78 percent on higher prices and the benefit of its acquisition of American Italian Pasta.
But the company lowered its outlook Thursday for the quarter that ended June 30, and its shares fell after hours. It now expects third-quarter adjusted earnings of $1.13 to $1.18 per share, below the $1.38 that analysts polled by FactSet anticipated. Ralcorp plans to announce full quarterly results on Aug. 9.
Ralcorp also lowered its full-year outlook. It now expects adjusted earnings of $5.20 to $5.35 per share, citing slow sales of name-brand cereals and price increases falling behind cost increases. The company earlier forecast adjusted earnings of $5.45 to $5.55 per share. Analysts, on average, were anticipating $5.52 per share.
Shares of Ralcorp fell $4.62, or 5.3 percent, to $82.00 in aftermarket trading. They ended the regular session, before the announcements of the split and the lowered outlook, at $86.62, down 14 cents.