Post Cereals to Merge with Ralcorp

16/11/07 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 U.S. 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, 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% to $3.3 billion a year from $2.2 billion, with Post cereals accounting for approximately 32% of total annual sales;

* Enhances Food EBITDA margins by at least 500 basis points from 10.9% to 16.0% - 16.6%, resulting in pro forma combined 2007 Food EBITDA between $533 million and $553 million, an increase of approximately 120% to 128% over Ralcorp's reported results;

* Increases earnings per share by $0.44 to $0.68 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.

Under the terms of the agreement, which has been approved by the boards of directors of both companies, Kraft will distribute ownership of Post and related assets to Kraft shareholders in either a split-off or spin-off transaction. Kraft will determine the form of the transaction prior to closing. A split-off would provide Kraft shareholders the option to elect to exchange Kraft shares for stock in the new Ralcorp. A spin-off would involve a pro rata distribution of shares to Kraft shareholders. Regardless of the method, upon closing of the merger, current Kraft shareholders will own approximately 54 percent of the new Ralcorp and current Ralcorp shareholders will own approximately 46 percent of the combined company. The transaction is expected to be tax-free to shareholders of both companies.