Krafting a good deal

15 November 2007 By Rob Cox Follow @rob1cox

The food giant looks to have sold the Grape Nuts maker at a pittance relative to rivals like Kellogg. But the reverse Morris Trust structure in which Kraft spins off Post and then merges it with Ralcorp saves $1.4bn in taxes.

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Kraft Foods announced an agreement to merge its Post cereals business into Ralcorp Holdings, a maker of privatelabel and frozen bakery products.

The deal is valued at $2.6bn including debt. Kraft shareholders will receive at least 30.3m shares of Ralcorp stock at closing, and Kraft will receive approximately $960m in cash. In a statement, Kraft noted that to have achieved a comparable result in a taxable transaction, it would have needed to receive $4bn in cash for the business.

Banc of America Securities advised Ralcorp. Centerview Partners and the Blackstone Group advised Kraft.

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