(Reuters) - Conagra Brands Inc <CAG.N> said on Wednesday it would buy Pinnacle Foods Inc <PF.N> for about $8.1 billion in cash and stock, creating a frozen food powerhouse with brands such as Birds Eye, Healthy Choice and Marie Callender's.
The deal between the two packaged food companies is occurring amid drastic changing consumer tastes as shoppers opt for healthier products instead of processed items.
Profit margins in the industry have also been squeezed by higher commodities and transportation costs.
Conagra has been bulking up its frozen food line, which rakes in sales of $2.7 billion, with recent acquisitions like breakfast food maker Sandwich Bros. It has also revamped brands such as Banquet's frozen meals by offering protein-rich products with fewer artificial ingredients.
As part of the deal, Pinnacle Foods shareholders will get $43.11 per share in cash and 0.6494 shares of Conagra's stock for each share of Pinnacle Foods held, implying an offer price of about $68.
Including debt, the deal is valued at $10.9 billion.
Conagra's stock was down 7 percent and Pinnacle shares were down 4.4 percent in premarket trading.
The acquisition is a victory of sorts for Conagra Chief Executive Officer Sean Connolly, who had earlier unsuccessfully tried to buy Pinnacle Foods as CEO of Hillshire. The sale to Hillshire was canceled after the company agreed to sell itself to Tyson Foods Inc <TSN.N> for $7.7 billion.
Talks, however, restarted in April after activist hedge fund Jana Partners LLC bought a 9.1 percent stake in the New Jersey-based Pinnacle and urged the company to look for a sale.
To complete the deal if necessary to obtain antitrust approval, Pinnacle said Conagra would divest assets of either of the two companies that account for up to $300 million of net sales.
Analysts at JPMorgan do not see any regulatory hurdles for the deal despite there being overlaps in 44 categories.
"Our best guess: Perhaps a couple of brands will need to be divested, but the deal – if the two parties agree to combine – likely would pass regulatory muster," JP Morgan analyst Ken Goldman wrote in a note.
Last week, sources told Reuters that Pinnacle Foods had restarted talks about potentially selling itself to its larger peer.
The deal is expected to close by the end of calendar 2018.
Goldman Sachs and Centerview Partners are financial advisers to Conagra, while Evercore and Credit Suisse are advising Pinnacle.
(Reporting by Aishwarya Venugopal in Bengaluru; Editing by Shailesh Kuber, Bernard Orr)