Kraft Merges Post Cereals with Ralcorp

Kraft Foods Inc. announced a definitive agreement in 2007 to merge its Post cereals business into Ralcorp Holdings Inc., a company in private-label and frozen bakery products. The transaction was deemed tax-efficient and worth approximately $2.6 billion to Kraft and its shareholders. For purposes of comparison, to have achieved an equivalent amount in a taxable transaction, Kraft would have needed to receive approximately $4 billion in cash for the business.

The Post cereals business had net revenues of about $1.1 billion in 2006 and includes such popular cereals as Honey Bunches of Oats, Pebbles, Shredded Wheat, Selects, Grape Nuts and Honeycomb. The brands in this transaction are distributed primarily in North America.

Kraft will split off its Post Cereals business and distribute via a split-off deal all outstanding shares of its subsidiary Cable Holdco Inc. that will own some assets and liabilities of its Post cereals business. Cereal maker Ralcorp Holdings Inc.'s Ralcorp Mailman LLC unit will combine with Cable Holdco Inc. In November 2007, Kraft said it would sell two dozen Post cereal brands to Ralcorp for $1.7 billion in stock. Kraft shareholders will own 54 percent of the company.

"This is a transaction where everyone wins -- Kraft, Ralcorp, our respective shareholders and employees," says Irene Rosenfeld, Kraft Chairman and CEO. "Ralcorp has an excellent opportunity to continue building the Post brands, which have been known and loved by consumers for generations. Kraft shareholders will benefit from the future value created by combining the Post brands with Ralcorp. And Kraft is taking yet another step in the transformation plan that we laid out in February to restore the company to reliable growth."

The transaction is said to have several benefits for Kraft and its shareholders 
-It will better enable Kraft to focus its resources on its growth strategy;
-Value for Kraft shareholders will be optimized through a tax-efficient structure; and
-Ralcorp will benefit by combining Post's strong branded assets with its private-label business and infrastructure.

In addition to the Post brands, the transaction includes four manufacturing facilities -- Battle Creek, Mich.; Jonesboro, Ark.; Modesto, Calif.; and Niagara Falls, Ontario -- and certain manufacturing equipment. Kraft anticipates that approximately 1,250 employees will join Ralcorp.

"We are grateful for the hard work and dedication of our talented employees who helped build Post into a billion-dollar brand," says Rosenfeld. "We wish them much continued success as they join the Ralcorp family."