The Street reported today that ConAgra told Ralcorp it would “walk away from its $5.2 billion takeover bid” if Ralcorp doesn’t agree to begin negotiating by September 19th.
The threat of a walkout is a tactic usually used for one or more of the following reasons:
1) To send a sincere signal that you have reached the end of the line;
2) To extract a concession by playing off your counterpart’s emotional fear of not reaching agreement; or
3) To send a signal that the issue under discussion is especially important.
Here, ConAgra is sending a signal they have reached the end of the line. Ralcorp rejected two previous offers from ConAgra. In both instances, ConAgra responded by increasing its offer, first from $82 to $86 per share and then to the present offer’s value of $94 per share.
Why should Ralcorp sit down at the table when ConAgra keeps bidding against itself? ConAgra should follow through on its threat to “walk away” and consider turning its bid hostile. A less pleasant alternative might be the inducement Ralcorp needs to finally sit down at the table.