Activist Investor Barry Rosenstein Enters Into Agreement With ConAgra Foods Inc. (CAG); Board Expanded To 14 Members

According to a freshly-submitted Schedule 13D form filed with the Securities and Exchange Commission, Barry Rosenstein’s JANA Partners owns 30.57 million shares (including options to purchase 19.03 million shares) of ConAgra Foods Inc. (NYSE:CAG), which represent 7.1% of the company’s outstanding shares of common stock. The event-driven hedge fund firm also entered into an agreement with ConAgra Foods to appoint Bradley A. Alford and Timothy R. McLevish to the company’s Board of Directors, which will subsequently increase the board composition to 14 members from 12.

Barry Rosenstein - Jana Partners

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Follow Barry Rosenstein's JANA Partners

JANA Partners is a New York-based hedge fund firm established by reputable activist investor, Barry Rosenstein, in 2001. Even though Rosenstein is part of a group of activists that includes Carl Icahn of Icahn Capital Management, Daniel Loeb of Third Point, and Bill Ackman of Pershing Square, he is different from the crowd because, unlike his peers, Rosenstein is a driven and collaborative activist who eschews aggressive public stances. He is among the most successful activist investors in recent years, making his JANA Partners an ideal instrument to unlock value for different companies by becoming an actively engaged shareholder. According to its most recent 13F filing, the public equity portfolio of the activist hedge fund firm is valued at $17.23 billion as of the end of the first quarter. In the meantime, some of its largest holdings at the end of the same quarter include: QUALCOMM Incorporated (NASDAQ:QCOM), Walgreens Boots Alliance Inc. (NASDAQ:WBA) and eBay Inc. (NASDAQ:EBAY).

ConAgra Foods Inc. (NYSE:CAG) is one of the largest packaged food companies in North America and a strong commercial foods business, serving restaurants and foodservice operations worldwide. Despite the fact that the shares of ConAgra Foods have increased by over 22% year-to-date, the stock might still have more room to run in the upcoming months and years as the company is anticipated to undertake some notable changes with the appointment of Bradley A. Alford and Timothy R. McLevish to the company’s Board of Directors. Rosenstein acquired a sizable stake in ConAgra last month and claimed that he would attempt to improve the company’s performance and make it a more attractive stock, and it seems that he has quickly been successful in pursuing that goal. The team of professionals at JANA Partners believes that the packaged food company has disappointingly failed to create shareholder value since the acquisition of private-label food maker Ralcorp Inc. in January of 2013. On March 26, ConAgra wrote down the acquisition’s value by $1.3 billion, which was a clear indicator that the strategic decision to acquire this company back in 2013 had been a failure. Yet again, JANA claims that this acquisition made by ConAgra resulted in disappointing performance for the company’s shareholders, constant guidance misses, negative revisions to its long-term earnings targets, lack of dividend per share growth, and other operating performance challenges.

Both JANA Partners and ConAgra Foods are confident that the freshly-appointed board members possess the necessary expertise, experience, and focus on shareholder value to assist the packaged food maker in evaluating and undertaking the growth opportunities that come its way so as to create shareholder value. Bradley A. Alford and Timothy R. McLevish will indisputably take on a strategic review of ConAgra’s strategy and corporate structure so as to assess whether the company is well-positioned to succeed. At the same time, they might also consider other alternative transactions that the company might embark upon, such as tackling the operational performance and cost structure of the company, and attempt to optimize its capital structure and allocation policies.  Indeed, there is still a long way to go until ConAgra achieves operational efficiency and solves the challenging issues within the company. However, it is promising that ConAgra has woken up to the reality that in order to succeed in the long term, cooperation is the way to go.

Let’s now take a quick glance at ConAgra’s most recent financial results in order to get a shallow understanding of the company’s financial performance. On June 30, ConAgra Foods reported diluted EPS from continuing operations of $0.47 per share for the fiscal fourth quarter of 2015 that ended May 31, compared to a loss of $0.95 registered in the same quarter a year ago. ConAgra Foods has repaid roughly $1.1 billion of debt during the current fiscal year, which marks a $2.1 billion cumulative debt reduction since the completion of the Ralcorp transaction mentioned above. Therefore, it seems that the company has been quite successful in managing its debt levels at the very least. Even more to that, ConAgra has seen increased productivity lately in some of its segments, which is evidenced by operating profit growth. For instance, the Consumer Foods segment posted an operating profit of $304 million for the quarter, which is significantly higher than the $176 million figure reported a year ago.

Within our database, Phill Gross and Robert Atchinson’s Adage Capital Management and Ken Griffin’s Citadel Investment Group represent the largest shareholders of ConAgra Foods Inc. (NYSE:CAG) after JANA Partners, with ownership of 3.86 million shares and 3.50 million shares, respectively.

Disclosure: None