Private-label cereal maker Ralcorp Holdings rah confirmed Thursday that it will buy Kraft Foods' kft Post cereals unit, the nation's third largest, whose brands include Spoon Size Shredded Wheat and Post Raisin Bran.
The purchase had been rumored earlier this month.
Ralcorp shares surged as the company gains heft to compete against brand-name cereal industry leaders Kellogg k and General Mills gis.
The companies said the deal includes stock valued at $1.65 billion, and Ralcorp will assume $950 million in debt, making the deal worth a total of about $2.6 billion.
Under terms of the deal, Kraft will first split off or spin off Post and its related assets to Kraft shareholders.
The Post cereals business would then be combined with Ralcorp. Kraft shareholders would own about 54% of Ralcorp when the deal is complete, with Ralcorp shareholders owning about 46%.
The Post cereal business generated 2006 sales of $1.1 billion. Its brands also include Honey Bunches of Oats, Pebbles, Post Selects and Grape Nuts.
"This is a transforming event for Ralcorp," said David P. Skarie, co-chief executive officer and president of Ralcorp, who will be responsible for Post after the transaction closes.
"The addition of Post cereals gives Ralcorp a truly distinctive line of branded cereal products plus a branded infrastructure and platform that we can build on through organic growth and acquisitions," he said.
He said Post's marketing and sales support team will continue to be based in New Jersey, and its R&D team will remain in Battle Creek, Mich.
Kraft said the deal allows it to better focus on its own growth strategy.
The transaction will boost Ralcorp's 2007 sales 50% to $3.3 billion a year from $2.2 billion, with Post cereals accounting for about 30% of total annual sales.
The deal is expected to close in mid-2008, subject to regulatory and Ralcorp shareholder approvals. Kraft will provide transition services for up to 18 months after closing.
The expanded Ralcorp will include the Post cereal manufacturing plants in Battle Creek, Mich.; Jonesboro, Ark.; Modesto, Calif.; and Niagara Falls in Canada. Ralcorp will retain employees at the plants.