Kraft seals its deal to sell Post cereals

Ralcorp Holdings Inc., a maker of store-brand cereals, agreed to buy Kraft Foods Inc.'s Post cereals for $2.6 billion to obtain more expensive brands such as Grape Nuts and Shredded Wheat.

The purchase includes the assumption of $950 million of debt and will be tax-free, St. Louis-based Ralcorp said Thursday in a statement. Stockholders of Northfield-based Kraft will receive at least 30.3 million shares, or 54 percent, of Ralcorp as part of the sale.

Kraft Chief Executive Officer Irene Rosenfeld is selling Post to focus instead on Triscuits snacks, Maxwell House coffee and Cracker Barrel cheese. The purchase will boost Ralcorp's sales by 50 percent to $3.3 billion a year and expand its offerings beyond the store-brand cereals it already makes. Post cereals lag behind sales of Kellogg Co. and General Mills Inc.

"This is an indication that Kraft has embarked on the right strategy," said Douglas Lane, president of Douglas C. Lane & Associates, which manages $2.1 billion, including Kraft shares. "Kraft was never going to be a leader in cereal, therefore they should get out. They've got to become dominant in something."

Ralcorp shares jumped $5.77, or 10 percent, to $61.24 in New York Stock Exchange composite trading. Kraft fell 61 cents, or 1.9 percent, to $32.37.

Rosenfeld has been under pressure from billionaire investor Nelson Peltz. Kraft added two board members backed by Peltz earlier this month after he agreed not to seek control of the company.

Tim Ramey, an analyst at D.A. Davidson & Co., estimates Kraft will receive 8.6 times earnings before interest, taxes, depreciation and amortization for the sale. It's "dilutive for Kraft no matter how you slice it," he said.

"I still question why anyone at Kraft spent 5 minutes considering this deal. It makes no sense," said Ramey, who rates Kraft shares as "underperform" and doesn't follow Ralcorp. "The cereal business is better than Jell-O, better than Miracle Whip, better than cheese" that Kraft also makes.

Kraft's Post unit produces Post Raisin Bran, Honey Bunches of Oats, Honeycomb and Pebbles, and had revenue of $1.1 billion last year.

Separately, Kraft said it will close a plant in Cobourg, Ontario, Canada, that employs 380 because it's not being fully used.