Tyson’s $8.55 Billion Offer for Hillshire is Top Bid

And the winner of the bidding battle for the Hillshire Brands Company is, apparently, Tyson Foods, Inc. The exercise in upwardly mobile stock price offerings seems to have come to an end after Pilgrim's Pride Corp., a unit of JBS SA of Brazil, withdrew its proposal to acquire Hillshire, the maker of Jimmy Dean sausages, frozen breakfast sandwiches, Ball Park hot dogs and other meat products, in addition to Sara Lee frozen baked goods and Chef Pierre pies

“We determined that it was in the best interests of our shareholders not to increase our proposed price,” said a spokesman for Pilgrim’s Pride in a prepared statement.

Springdale, Arkansas, USA-headquartered Tyson Foods announced on June 9 that it has submitted a unilaterally binding offer to acquire all outstanding stock of Chicago-based Hillshire for a price of $63 per share in cash (a significant premium over Pilgrim Pride’s $55 bid).  The offer is subject to Hillshire being released from its existing agreement to acquire Pinnacle Foods Inc., a Parsippany, New Jersey-headquartered processed foods company whose holdings include Birds Eye frozen vegetables, Celeste brand pizza, Van de Kamp and Mrs. Paul’s fish sticks and fillets, and other frozen and non-frozen retail brands.

Hillshire, meanwhile, says that it has not approved Tyson’s offer, and in any event will first put the Pinnacle acquisition plan to its shareholders for a vote. Tyson’s proposal is good through December 12.

A posting on its website made on June 9 states, in part: “Hillshire Brands [board of directors] 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.”

The all-cash transaction on the table from Tyson is valued at approximately $8.55 billion, including Hillshire’s outstanding net debt, and represents a multiple of 16.7x trailing 12 months adjusted EBITDA or 10.5x, including $300 million in synergies.

hillshirebrandslogo“The Hillshire Brands acquisition would represent a defining moment for Tyson Foods,” said Donnie Smith, Tyson’s president and chief executive officer. “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 #1 and #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 combination of Tyson, the USA’s largest poultry processor, and Hillshire Brands would reposition Tyson as a clear leader in the retail sale of prepared foods in the nation, with a complementary portfolio of well-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.

“After a disciplined process to identify ways of growing our prepared foods segment, we are convinced that combining Tyson and Hillshire Brands would make strategic, financial and operational sense and would stabilize earnings by increasing return on sales and de-commoditizing our business,” Smith said.

The transaction would be funded by cash on hand and a fully committed bridge facility from Morgan Stanley Senior Funding, Inc. and JP Morgan Securities LLC. Tyson expects to maintain its investment grade credit rating and is prepared to issue debt and equity, if required. It anticipates the substantial cash flow from the combined companies will enable rapid pay down of debt.

Should the $8.55 billion deal come to fruition, as is expected, it would mark the biggest transaction ever in the international meat business. That amount far exceeds the $4.7 billion paid last year for Smithfield Foods Inc. by Shuanghui International Holdings Ltd of China, which now does business as the WH Group Ltd.