NEW YORK — Post Holdings Inc. is working with investment bankers to possibly acquire Lamb Weston Holdings, Inc., according to Reuters. Lamb Weston’s stock price has dropped 31% since January, and activist investor Jana Partners — which has an approximate stake of 5% in Lamb Weston — is urging sweeping changes, including a possible sale of Lamb Weston.

Post has a market value of about $7 billion, while Lamb Weston has a market value of approximately $10.5 billion. Wall Street analysts noted that Post, Cargill, Tyson Foods, and Kraft Heinz could all be potential buyers. On Friday, Lamb Weston’s stock climbed nearly 7% to close at $79.27.

Lamb Weston is the largest potato processor in North America and the top producer of frozen french fries, counting McDonald’s as one of its customers. Post also has potato interests through foodservice subsidiary Michael Foods.

In October, Lamb Weston announced restructuring measures in response to perceived weak market conditions, particularly in the quick-service restaurant category. The changes included closing a manufacturing facility in Connell, Wash., that employed nearly 400. Lamb Weston currently employs approximately 9,300 and is planning to reduce its global headcount by 4%.

Jana Partners demands changes

Lamb Weston became a publicly traded company in 2016 and was previously a part of ConAgra Foods, Inc (now Conagra Brands). Since then, company performance has not met expectations, to the point where Jana Partners noted in a securities filing two months ago that it wanted improved operations and capital allocation at Lamb Weston, and that the company should also consider selling itself.

In a letter to Lamb Weston’s board of directors on Dec. 16, Jana Partners detailed its disappointment with Lamb Weston’s performance and called out several areas of questionable decision-making by Lamb Weston executives.

“We believe Lamb Weston’s board and management have wasted the chance to sustain and grow shareholder value in a high-quality business,” said Scott Ostfeld, managing partner and portfolio manager at Jana Partners. “It is indisputable that Lamb Weston’s track record for shareholders prior to the disclosure of our investment has been poor, not only in a disastrous 2024 — which includes an earnings report so ignominious that it prompted one long-tenured analyst to declare it ‘one of the worst days for a larger-cap food producer in modern history’ — but also over the long term with total returns in the last five years dramatically trailing the S&P 500 and performing in the bottom quartile when compared to proxy peers.”

Other areas of disappointment detailed by Jana Partners include:

  • Significant financial and operating deficiencies. Jana Partners noted mistakes have cost Lamb Weston at least $400 million in EBITDA over the past 2.5 years. Some of the issues include losing market share by voluntarily eliminating business with some customers; mis-forecasting customer demand, resulting in a write-off of raw potato assets for fiscal 2024 and 2025; and failing to identify and address product quality problems for a key customer, resulting in $80 million in losses due to product withdrawal.
      
  • Failed oversight of capital allocation. Jana Partners said the multi-year escalation of capital deployment led to elevated capital expenditures without acceptable returns, and left Lamb Weston with no margin of fiscal safety when operational missteps surfaced. The missteps included an escalation of capital expenditures related to new capacity, which resulted in closing the Connell, Wash., plant; announcing a long-term capex target of 9%, which is substantially higher than stated maintenance capex levels of 3% revenue, and no explanation for how the spend would generate acceptable returns on capital; and misaligned executive compensation that allowed management to earn the maximum amount (200%) despite “disastrous” performance for investors.
      
  • Questionable use and disclosure around aviation assets. Jana Partners noted having a corporate plane to transport employees between Lamb Weston’s Boise, Idaho, base and key manufacturing locations around the United States is understandable, but Jana Partners analyzed flight records since 2019 and found 300 Lamb Weston flights into/out of Omaha, Neb., which is the former headquarters of Lamb Weston's parent company, and what appears to be the CEO’s primary residence. Jana Partners also discovered via FAA records that Lamb Weston had reserved two new plane tail numbers but canceled them the day of Jana’s 13D filing in Lamb Weston in October.

“This track record makes clear that the status quo is no longer tenable — and is completely unacceptable — for shareholders,” Ostfeld said. “Jana has a multi-decade reputation of working constructively with boards to drive change and improve performance. In this spirit, our offer stands to work with Lamb Weston, as we and our team of highly regarded industry executives are prepared to join the board immediately and help rehabilitate the company and drive long-term value.

“However, if the board is unwilling to make the significant changes needed to repair Lamb Weston, then the company should work with its financial advisers to explore a sale and take advantage of strategic interest in the company to achieve the highest possible risk-adjusted return for shareholders.”