Tyson Apparently Wins Hillshire

June 9, 2014
$8.5 billion offer tops Pilgrim's, bolsters Tyson's prepared foods business; still nixes Pinnacle deal.

It looks like Tyson Foods has won the bidding war for Hillshire Brands Co. Over the weekend, Tyson upped its offer to $63 per share in cash for Hillshire, up from its original bid of $50.

The transaction is valued at approximately $8.55 billion, including Hillshire debt, and represents a multiple of 16.7 times the trailing 12 months adjusted earnings. But it may be Christmas before the deal gets rolling.

As a result, Pilgrim's Pride Corp., which started the bidding war for Hillshire on May 27 and was the only other bidder, announced it was stepping out.

Tyson's offer, like Pilgrim's, is contingent on Hillshire being released from its existing agreement to acquire Pinnacle Foods Inc. for a total of $6.6 billion.

"The Hillshire Brands acquisition would represent a defining moment for Tyson Foods,” said Donnie Smith, Tyson’s president/CEO. “Our strategy has been to grow our prepared foods business, and it has been our aspiration to be a leader in retail prepared foods just as we are in chicken. Now we will have those iconic No. 1 and No. 2 brands in numerous categories.”

“Tyson Foods has a history of growing through strategic acquisition,” said John Tyson, chairman of the board, “It is the view of the board of directors that this is truly a transformational opportunity and one that best fits with our strategic plan while enhancing our margins and creating long-term shareholder value.” The Tyson family and the board are prepared to issue shares to maintain the company’s investment grade credit rating.

The combination would give Tyson a complementary portfolio of recognized brands, including Tyson, Wright Brand, Jimmy Dean, Ball Park, State Fair and Hillshire Farm. In particular, the strength of Hillshire Brands’ products in the breakfast category would allow Tyson to capture opportunities in this attractive and fast-growing day part.

The transaction would be funded by cash on hand and a fully committed bridge facility from Morgan Stanley Senior Funding. Tyson expects annual synergies in excess of $300 million driven primarily by operational efficiencies, purchasing, distribution, supply chain efficiencies, upgrading raw materials and through the combination of the two companies’ talented sales and marketing teams and alignment of shared service functions.

The offer will remain in effect until Dec. 12, the termination date of the Hillshire Brands-Pinnacle Foods agreement. Once that agreement is terminated in accordance with its terms, Hillshire Brands would be able to accept Tyson's offer.

Hillshire said in a statement: "The Hillshire Brands board of directors has not approved the Tyson Foods offer, has not changed its recommendation regarding the Pinnacle merger and is not making any recommendation with respect to the Tyson offer. Hillshire Brands does not have the right to terminate the merger agreement with Pinnacle Foods on the basis of the Tyson Foods offer or enter into an agreement with Tyson Foods prior to its termination. There can be no assurance that any transaction will result from the Tyson Foods offer."

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