Ralcorp Holdings Inc. agreed to acquire the Post cereals business of Kraft Foods Inc., paying about $1.6 billion in stock for the business.

The deal is part of Kraft's push to get rid of slow-growth assets under Chief Executive Irene Rosenfeld.

The Post cereals business, which includes Raisin Bran, Grape-Nuts and a variety of Pebbles children's cereals, is the No. 3 U.S. cereal maker by sales after Kellogg Co. and General Mills Inc., with net revenue of about $1.1 billion in 2006. But sales have been stagnant, in part because concerns about obesity among children have forced cereal makers to dial back marketing for sugary cereals.

"This is a transaction where everyone wins -- Kraft, Ralcorp, our respective shareholders and employees," Ms. Rosenfeld said in a statement Thursday. "Ralcorp has an excellent opportunity to continue building the Post brands, which have been known and loved by consumers for generations."

Kraft will distribute ownership of Post to its shareholders in either a split-off or spin-off transaction, to be determined upon closing of the deal. Either way, Kraft shareholders will own about 54% of Ralcorp, with current Ralcorp shareholders owning the rest.

The deal includes the assumption of nearly $950 million in debt. The sale, expected to close in mid-2008, is expected to cut Kraft's annual earnings by 13 cents a share.

"This is a transforming event for Ralcorp," said Ralcorp Chief Executive David P. Skarie. "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."

Sales of Post cereal at food retailers excluding Wal-Mart Stores Inc. fell 2% to $699 million in the first nine months of the year, according to market-research company Information Resources Inc. During that period, sales in the overall ready-to-eat cereal category were flat, at nearly $5 billion.

Private-equity buyers dominated the deal market for much of the year, but their recent difficulties raising financing pushed them to the sidelines in favor of strategic buyers such as Ralcorp.

PepsiCo Inc., General Mills, Kellogg and Del Monte Foods Co. also were considering Post, people familiar with the matter said last week.

For Ralcorp, a St. Louis private-label maker of cereals and other foods, the deal would raise revenue by about 50% to $3.3 billion. The extra heft would enable Ralcorp to better compete with Kellogg and other rivals for space on supermarket shelves and give Ralcorp more purchasing muscle amid rising prices for wheat and other raw materials. Ralcorp makes products such as cereal and frozen waffles for retailers, which sell them under their own brand names.

Source: online.wsj.com