ConAgra Foods Inc. said June 23 that it completed the sale of its commodity trading and merchandising operations conducted by ConAgra Trade Group, which includes ConAgra’s lucrative fertilizer trading business. ConAgra Trade Group was sold to an investor group led by Ospraie Special Opportunities Fund, which also includes global growth investor General Atlantic LLC and a private investment fund managed by Soros Fund Management LLC. ConAgra Trade Group was sold for approximately $2.8 billion, net of transaction costs and subject to post-closing adjustments. The final proceeds are higher than originally estimated due to increases in ConAgra Trade Group’s book value, reflecting gains and additional working capital.
The sold business will now operate as The Gavilon Group LLC. Although the purchase agreement granted ConAgra Foods the right to a portion of Gavilon’s earnings during the remainder of calendar 2008, the maximum earnings threshold in the applicable profit-sharing formula was reached prior to closing, removing any future benefit to ConAgra from this provision. Greg Heckman, formerly president of ConAgra Foods’s commercial businesses, is now chief executive of Gavilon, which will remain in its current offices in Omaha. Brian Harlander will continue to lead the unit’s fertilizer trading out of Savannah.
Gavilon will conduct grain and byproducts merchandising and fertilizer distribution, as well as agriculture, energy, and other commodity trading activities, and risk management services. Ratings agencies recently gave a positive nod to Gavilon (GM June 23, p. 15).
The ConAgra Trade Group helped ConAgra end its fiscal year May 25 with a 21.7 percent increase in net income. The sale of the unit did not become effective until after the end of ConAgra’s fourth quarter. ConAgra net income was $930.6 million ($1.91 per share) on sales of $11.6 billion, up from the prior year’s $764.6 million ($1.52 per share) on sales of $10.5 billion.
Discontinued operations reported income of $411.9 million for the year, up 45.9 percent from the prior year’s $282.3 million. ConAgra Trade Group made up the bulk of discontinued operations. By comparison, income from continuing operations was up only 7.5 percent for the year.
For the fourth quarter, discontinued operations had a 10.6 percent drop in income to $115.7 million, down from the year-ago $129.4 million. ConAgra-wide net income was $201.3 million ($.41 per share) on sales of $3.1 billion, up from the year-ago $192.0 million ($.39 per share) and $2.7 billion, respectively.
ConAgra shares were off 5.5 percent to $20.92 after its earnings release and its outlook came out June 26. The outlook did not meet analysts’ expectations, with some unhappy that ConAgra opted to sell the profitable trading group. While the group has been doing well, ConAgra was concerned about the overall volatility and unpredictability of the commodity markets in the long run.