Post Is Hungry for Bob Evans’ Frozen Foods

Cereal giant Post Holdings Inc. (POST) completed an under-the-radar deal to acquire refrigerated food services company Bob Evans Farms Inc. (BOBE) Tuesday for $1.5 billion. In a difficult market for large food companies, Post jumped at the opportunity to expand its refrigerated side dish offerings and provide a long-term boost to its bottom line.

Post will be funding the deal with cash and debt, and the company says it expects to achieve $25 million in annual cost savings within three years of the deal’s completion.

Investors may know Bob Evans by its iconic restaurant chain, but the restaurants will not be part of the deal. Bob Evans sold its restaurants to private equity firm Golden Gate Capital for $565 million earlier this year.

Its remaining business is centered on frozen foods. According to Post’s investor presentation on the deal, 66 percent of Bob Evans’ business comes from side dishes and 22 percent comes from sausage.

“We have enormous respect for Bob Evans’ success and are excited about the growth opportunities this combination will create,” Post CEO Rob Vitale says. “Combining with Bob Evans expands our portfolio of top brands and gives Post a leading position in the perimeter of the store.”

Large food companies like Post have been struggling to find sources of growth in recent years in light of rising competition from smaller, niche food companies. In the past four quarters, Post has reported lackluster year-over-year revenue growth between -4 percent and +2 percent.

Sales volume for Bob Evans’ refrigerated side dishes has grown at a 14 percent compound annual rate since 2012. Post reports that refrigerated sides are one of the highest-growth grocery categories in today’s market, averaging 11.1 percent sales growth.

Post is hoping that a fresh, long-term growth source will be well worth the steep price the company paid for Bob Evans. The $77 per share price tag represents roughly a 15 percent premium to the stock’s 30-day volume-weighted price. Prior to the deal, Bob Evans shares were already trading at an elevated forward price-to-earnings ratio of 28.7, according to Yahoo.

The boards of both companies have already approved…

Click here to continue reading

Want to learn more about how to profit off the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common SenseI don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and is always available on your local internet!