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Conagra Brands Inc said on Wednesday it would buy Pinnacle Foods Inc for about $8.1 billion, trying to grab a bigger share of the fast-growing snack and frozen food markets amid fierce competition in the packaged food industry.

The cash-and-stock deal, which would make Conagra the No. 2 U.S. frozen food maker by sales after Nestle (NESN.S), comes as demand rises for convenient, healthy ready meals, especially among millennials.

Conagra and Pinnacle Foods have been investing aggressively to become the two fastest-growing frozen meal companies, according to analysts, with such brands as Birds Eye, Power Bowls and Hungry-Man, which tout more protein and fewer artificial ingredients.

The combined market capitalization of Conagra and Pinnacle Foods is about $23 billion, on par with rival Kellogg Co (K.N). The deal comes at a time when scale and negotiating power are crucial to packaged goods companies being squeezed by high commodities and freight costs and pressure from retailers for low pricing.

“M&A is a common theme we’re going to continue to see as the growth environment has slowed for many packaged goods companies,” Edward Jones analyst Brittany Weissman said, adding that many in the industry considered the deal “inevitable.”

“There are benefits to M&A on the cost side of things from buying power to supply chains, by being larger. But there’s also benefits on the negotiating side with prices, merchandising and working with retailers,” Weissman said.

Conagra Chief Executive Officer Sean Connolly told Reuters the deal would help the company cut down on supply chain costs and strengthen its relationship with retailers.

“We can do a better job of filling full truckloads when we ship to our customers and work more efficiently,” Connolly said, adding that the company will use the cash from cost savings to invest more in developing its brands.

DEAL WAS ‘INEVITABLE’
Chicago-based Conagra said the two packaged food companies would have reported a combined $11 billion in full-year proforma net sales, with $4.9 billion in frozen food sales. It expects to save about $215 million by the end of the fiscal year 2022.

Pinnacle shareholders would get $43.11 per share in cash and 0.6494 Conagra shares for each Pinnacle share, implying an offer price of about $68 a share.

Including debt, the deal is valued at $10.9 billion. It is expected to close by the end of calendar 2018.

The acquisition is a victory of sorts for Connolly, who had unsuccessfully tried to buy Pinnacle when he was CEO of Hillshire. The sale to Hillshire was canceled after Hillshire agreed to sell itself to Tyson Foods Inc for $7.7 billion.

Talks between Conagra and Pinnacle, however, restarted after activist hedge fund Jana Partners LLC in April bought a 9.1 percent stake in New Jersey-based Pinnacle and urged the company to look for a sale.

Conagra stock slid 7 percent to $35.56 and Pinnacle fell 4.2 percent to $65.

Weissman said Conagra shares were likely down because the market was not thrilled with Conagra using shares for the deal. Also on Wednesday, the company reported mixed quarterly results, with better-than-expected sales but lower earnings than analysts had expected.

Stifel analyst Christopher Growe said the implied offer price was below the $75 per share he expected.

He said the offer was “a bit surprising,” citing other recent deals, such as General Mills Inc’s purchase of Blue Buffalo, which have reached up to 19 times earnings before interest, taxes, depreciation and amortization.

Goldman Sachs and Centerview Partners are Conagra’s financial advisers, while Evercore and Credit Suisse are advising Pinnacle.

By Aishwarya Venugopal and Richa Naidu

Source: Reuters