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Conagra faces class-action lawsuit over nondisclosures on Pinnacle deal

Conagra Brands Inc. and a number of its directors and officers are facing a class-action lawsuit over its alleged failure to disclose material adverse facts about the company's finances primarily related to its acquisition of Pinnacle Foods Inc.

Documents filed March 14 at a U.S District Court in northern Illinois by law firm Pomerantz LLP on behalf of a certain Jason Estrada allege that the Chicago-based packaged-foods maker "engaged in a fraudulent scheme to artificially inflate the company's stock price." Specifically, it claims that Conagra's management was either aware or "recklessly disregarded" the fact that its acquisition of Pinnacle Foods would not result in the benefits that the company publicly promised to its shareholders.

On June 27, 2018, Conagra announced its acquisition of Pinnacle Foods for $10.9 billion in a cash and stock transaction. The company touted the merger as a combination of "two growing portfolios" and a "no brainer of a deal," the filing states. The merger was completed Oct. 26, 2018.

The lawsuit accuses the defendants of concealing Pinnacle's sales and distribution losses, which the company later revealed Dec. 20, 2018, in its third-quarter 2018 results. Conagra's stock dropped $4.81 to $24.28 following the disclosure, wiping more than $2.3 billion off its market value. The stock declined the following day by an additional $2.13 per share, or about 8.8%. In three trading sessions, the company's stock slid almost 28%, or $8.13, to close at $20.96 on Dec. 24, 2018, the complaint said.

The management's nondisclosure and the sharp decline in market value, according to the lawsuit, resulted in significant losses and damages on the part of the shareholders. Conagra has also announced plans to close some of its facilities as a result of the Pinnacle acquisition.

On Jan. 7, S&P Global Ratings downgraded Conagra's issuer credit rating due to Pinnacle's "weak" performance.

Conagra Brands did not immediately respond to a request for comment from S&P Global Market Intelligence.