Kraft Foods: to merge its Post cereals business with Ralcorp

St. Louis / MO. (rh) Ralcorp Holdings Inc. announced the signing of a definitive agreement with Kraft Foods Inc. to merge Post cereals with Ralcorp in an all-stock transaction. Post is the third-largest branded ready-to-eat cereal manufacturer in the United States with over 100 years of history in the industry. Post includes iconic brands such as Honey Bunches of Oats, the category´s third best-selling cereal, Pebbles, Post Selects, Spoon Size Shredded Wheat, Grape Nuts and Post Raisin Bran. The transaction is valued at approximately 2,6 billion USD, including the issuance and assumption of debt. The transaction will benefit the new Ralcorp in several important ways:

• Creates a larger, stronger business with a portfolio of businesses balanced between branded, private-label and frozen bakery food products;
• Increases 2007 sales by 50 percent to 3,3 billion USD a year from 2,2 billion, with Post cereals accounting for approximately 32 percent of total annual sales;
• Enhances Food EBITDA margins by at least 500 basis points from 10,9 percent to 16,0 percent to 16.6 percent, resulting in pro forma combined 2007 Food EBITDA between 533 million USD and 553 million USD, an increase of approximately 120 percent to 128 percent over Ralcorp´s reported results;
• Increases earnings per share by 0,44 USD to 0,68 USD for pro forma fiscal 2008 as if the combination had been completed as of the beginning the fiscal year and before one-time costs associated with the transaction; and
• Maintains a conservative leverage profile and generates substantial incremental free cash flow to fund investments, acquisitions and share repurchases.

«This is a transaction where everyone wins – Kraft, Ralcorp, our respective shareholders and employees», says Irene Rosenfeld, Kraft Chairman and CEO. «Ralcorp has an excellent opportunity to continue building the Post brands, which have been known and loved by consumers for generations. Kraft shareholders will benefit from the future value created by combining the Post brands with Ralcorp. And Kraft is taking yet another step in the transformation plan that we laid out in February to restore the company to reliable growth». The transaction has several benefits for Kraft and its shareholders:

• It will better enable Kraft to focus its resources on its growth strategy;
• Value for Kraft shareholders will be optimized through a tax-efficient structure;
• Kraft shareholders will own 54 percent of the new Ralcorp; and
• Ralcorp will benefit by combining Post´s strong branded assets with its private-label business and infrastructure.

Kraft Foods and Ralcorp Holdings expect to complete the transaction in mid-2008. The transaction is subject to customary closing conditions, including regulatory and Ralcorp shareholder approvals.