Keith Meister's Corvex Management Takes Activist Stake in Ralcorp ~ market folly

Thursday, August 23, 2012

Keith Meister's Corvex Management Takes Activist Stake in Ralcorp

Keith Meister's Corvex Management just filed a 13D on shares of Ralcorp Holdings (RAH) with the SEC.  Per the filing, Corvex now owns a 5.13% stake in the company with 2,835,296 shares. 

Meister founded Corvex after working under Carl Icahn for years and obviously employs a similar activist/event-driven investment strategy. 

The filing was required due to portfolio activity on August 22nd.  This marks an increase of 367% in Meister's position size since the end of June when he owned just over 607,000 shares.

Corvex's Activist Plans For Ralcorp

Meister's firm explains why they've taken an activist stake in Ralcorp in their SEC filing, pointing to the company's strong competitive position in an industry with secular growth (but bad execution). 

Corvex believes Ralcorp should do one of three things:

1. Sell itself
2. Merge with another food company
3. Make changes on the board and implement a new strategy

It's worth pointing out that Ralcorp separated from its Post Cereals business in February of this year and acquired Petri Baking Products and Gelit in May and June, respectively.

In their 13D filing, Corvex writes:

"The Reporting Persons have had meetings and conversations with management of the Issuer to discuss the Issuer’s operations, strategy, and governance and will seek to have additional conversations with one or more of the Issuer’s management, members of the Issuer’s board, other stockholders of the Issuer and other persons to discuss the Issuer’s business, strategies, potential value enhancing actions or transactions and other matters related to the Issuer.

The Reporting Persons believe that the Issuer has a strong competitive position in an attractive industry with secular growth tailwinds but that poor execution has prevented the Issuer’s shares from reflecting full value. The Reporting Persons intend to discuss with one or more of the persons referenced above, among other topics, the Issuer’s performance since rejecting ConAgra’s acquisition offer last year.

Specifically, the Reporting Persons believe that the “status quo” is unacceptable and the Issuer should immediately pursue three alternatives to enhance stockholder value: 1) a sale of the company, 2) a merger with another food company to take advantage of economies of scale and cost synergies or 3) a “self-help” strategy with new investor board representation and a renewed focus on execution, accretive acquisitions and efficient capital allocation. The Reporting Persons intend to express their concern that the Issuer has had several serious execution issues since the Post separation including disappointing earnings, inability to file quarterly financials on a timely basis and poor communication with investors and analysts."

About Ralcorp

 Per Google Finance, Ralcorp is "engaged in manufacturing, distributing and marketing private-brand food products and other regional and value-brand food products in the grocery, mass merchandise, drugstore and foodservice channels. The Company’s products include nutritional bars; snack mixes, corn-based chips and extruded corn snack products; crackers and cookies; snack nuts; chocolate candy; salad dressings; mayonnaise; peanut butter; jams and jellies; syrups; sauces; frozen griddle products, including pancakes, waffles and French toast; frozen biscuits and other frozen pre-baked products, such as breads and rolls; frozen and refrigerated doughs, and dry pasta."

For more on this hedge fund, we've posted up about Corvex's activity in Corrections Corp of America as well.

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