ConAgra and This Billionaire Like Food Giant Ralcorp

On July 19th, I discussed the recent price action in Ralcorp Holdings Inc. (NYSE:RAH).  At the time, shares were slowly declining after jumping from $70 in April, to $90 in May.  The large jump can be contributed to the company receiving two takeover offers from ConAgra (NYSE:CAG).  Ralcorp turned both offers down, which left shareholders with a declining stock price.  On August 9th, shares of Ralcorp traded as low as $68.84. However, recent developments have once again sent Ralcorp shares soaring to $85 per share.

After the closing bell last Friday, Ralcorp officials announced they rejected a third takeover offer from ConAgra.  The new and improved takeover offer was priced at $94 a share ($5.17 billion), which is 10% higher than the previous offer. Ralcorp said they received the third offer in a letter on Thursday, but its board unanimously rejected the offer.  Ralcorp does not believe it is in the best interest of shareholders to accept the offer, and continues to expand its business by other means.  For example, Ralcorp recently announced plans to buy the private brand refrigerated dough business of Sara Lee (NYSE:SLE).

Yesterday, newly released 13F statements show that ConAgra is not the only entity interested in Ralcorp.  John Paulson, the billionaire investor who won big on the sub-prime mortgage meltdown, increased his stake in Ralcorp quite substantially in the second quarter.  At the end of March, Paulson held 400,000 shares of Ralcorp.  However, by the end of June, Paulson had increased his holdings to 3,692,000 shares.  This represents an increase of 823%, the second largest percentage increase in holdings for John Paulson.

Investors may find relief that John Paulson believes in Ralcorp, but they should keep in mind that Paulson also believed Bank of America (NYSE:BAC) was on a path to economic recovery. Ralcorp produces a variety of store brand foods that are sold under the individual labels of various grocery, mass merchandise, and drug store retailers.  Their products include everything from Post Raisin Brand to NutCracker Mixed Nuts.  Competitors include: General Mills (NYSE:GIS), Kraft (NYSE:KFT), and Kellogg (NYSE:K).

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Disclosure: No positions.