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(Reuters) - Long-time suitor ConAgra Foods Inc finally sealed a deal to buy private-label foods maker Ralcorp Holdings Inc for $5 billion, to tap into the booming business for packaged food that stores sell under their own brands.

Demand for private-label foods has outpaced growth in branded packaged foods as consumers buy more lower-priced options marketed by stores. ConAgra Chief Executive Gary Rodkin said he expects that growth to continue. Combining Ralcorp's scale as a leading private-label provider with ConAgra's innovation and category management, "you've got a very powerful story in a very fragmented private-label industry," he said.

The deal, broadens ConAgra's exposure to faster-growing retailers with robust private-label brands, like Whole Foods and Costco, he said.

"We'll be able to capitalize on the long-term growth momentum in the private label business, which has been growing about twice as fast as branded on a dollar basis over the last 13 years," Rodkin said on a conference call.

Ralcorp is the top private-label maker of large and growing categories like cereal, pasta, crackers, jams and jellies, syrups and frozen waffles, he said. The boards of both companies approved the deal, which should add to earnings in the first year, ConAgra said, adding it and Ralcorp would have annual private-label sales of $4.5 billion.

Ralcorp shareholders will receive $90 per share in cash, a premium of 28.2 percent to the stock's Monday close, making the deal a big win for activist investor Keith Meister, founder of Corvex Management, Ralcorp's largest shareholder.
Corvex demanded in August that Ralcorp either sell itself, buy another company or change its strategy after a series of earnings disappointments.

Meister, who founded the hedge fund management company in late 2010 after seven years with activist investor Carl Icahn, was named to Ralcorp's board in October and was on the committee that evaluates strategic opportunities.

Separately, Meister had another success on Tuesday when the board of security services provider ADT Corp approved a $2 billion share buyback and said it was considering taking on more debt, partly at the urging of Corvex, which disclosed a 5 percent stake in ADT last month.

After news of the Ralcorp deal, shares of rival private-label food manufacturer Treehouse Foods Inc were up 2.4 percent at $53.14, and rose as high as $54.72. Treehouse is more likely to become a potential acquisition target, analysts said.

FOURTH TIME IS THE CHARM
Rodkin said that after the Ralcorp acquisition, expected to close March 31, ConAgra would have $18 billion in annual sales: 25 percent from private label, 43 percent from branded food and 32 percent from commercial and food service. ConAgra, whose brands include Chef Boyardee pastas and Slim Jim meat snacks, began pursuing Ralcorp in March 2011 with an offer of $82 per share. It raised its bid twice including a then-final offer of $94 per share made in August 2011, which valued Ralcorp at $5.2 billion.

Ralcorp chose instead to spin off its cereals business into Post Holdings Inc earlier this year. Tuesday's deal values Ralcorp and Post at about $6.12 billion combined, almost $1 billion more than the August, 2011 offer. Davenport & Co analyst Ann Gurkin said ConAgra did not overpay because the private-label business would be lucrative.

"Ralcorp with ConAgra's private-label portfolio will make a very strong combination," Gurkin told Reuters, adding that her main concern was a successful and timely integration. ConAgra shares rose nearly 5 percent to a seven-year high of $29.66 in morning trade on the New York Stock Exchange. Ralcorp shares were trading at $88.75.

RIVAL TO BENEFIT?
For Ralcorp's rival Treehouse, the deal is "a positive catalyst" as it "temporarily ties up the two other major private-label buyers in the acquisition landscape," Suntrust Robinson Humphrey analyst Bill Chappell said in a note.

"With other strategic acquirers gone, financial players would surely struggle to bid up deal prices, said Janney Capital Markets analyst Jonathan Feeney.

Conagra's Ralcorp purchase was valued at $6.8 billion including debt. It will be funded with cash on hand and new borrowings, for which ConAgra has received a commitments from BofA Merrill Lynch. ConAgra said it will issue $350 million of equity. It will also maintain its annual dividend of $1.00 per share and significantly reduce share buybacks while it pays down debt from the deal. It hopes to resume merger activity later. Centerview Partners and BofA Merrill Lynch are financial advisers to ConAgra, while Barclays and Goldman Sachs & Co are advising Ralcorp.

Ralcorp also reported a fourth-quarter net loss of $44.2 million, or 80 cents per share, on revenue of $1.07 billion. Ralcorp earned 92 cents a share on an adjusted basis, exceeding analysts' forecast of 87 cents, according to Thomson.