Battle to Acquire Hillshire Continues as Pilgrim's Pride Ups Bid

Andrew Klips  |

Last Tuesday, Pilgrim’s Pride Corp. (PPC) said it was willing to pay $45 per share to acquire Jimmy Dean sausage maker Hillshire Brands Co. (HSH) .  As part of the deal, Pilgrim’s Pride said that Hillshire had to ditch its plans to acquire Pinnacle Foods (PF) for $4.23 billion.

Hillshire’s offer to buy Pinnacle drew quick criticisms from analysts and stakeholders questioning the synergies of brands and Hillshire taking on about $2.3 billion in debt.

Pilgrim’s Pride wasn’t the only one that views Hillshire as a tasty acquisition, as two days after Pilgrim’s offer, Tyson Foods (TSN) jumped over its rival chicken processor, unveiling an unsolicited offer of $50 per share for Hillshire. Including debt, the Tyson says the offer valued Hillshire at $6.8 billion. Tyson also said the offer was contingent on Hillshire dropping its plans to buy Pinnacle Foods.

Tyson is the world’s second largest meat processor, trailing only Brazil-based JBS SA. JBS was instrumental in Pilgrim’s Pride emerging from bankruptcy in 2009, taking a 75% stake in the company.

A merger of Pilgrim’s Pride and Hillshire would create the world’s biggest packaged meat company, with approximately $12.4 billion in annual sales.  Hormel (HRL) currently holds the title with about $9 billion in sales. Pilgrim’s Pride sees about $300 million in annual savings by merging the companies and an opportunity to take Hillshire brands overseas, as nearly all of Hillshire’s current revenue is derived in the U.S.

If Tyson wins the battle for Hillshire, though, it would firmly cement itself as the biggest meat company in the U.S., including gaining some exposure in the breakfast meat category.

Pilgrim’s Pride wasn’t standing for it, coming in Tuesday with an offer of $55 per share in cash to acquire Hillshire, upping the value of Hillshire to $7.7 billion, including debt. The new price tag is a 49 percent premium to the value of Hillshire the day before the first proposal was disclosed.

Hillshire said today that it plans to meet with both Tyson and Pilgrim’s Pride separately to discuss the offers.  In the meantime, Hillshire does not have the right to terminate the Pinnacle deal at this point, saying in a prepared statement today, “The Hillshire Brands Board of Directors is not withdrawing, modifying, withholding or qualifying its recommendation with respect to the Pinnacle merger agreement and the merger, or proposing to do so, and is not making any recommendation with respect to either the Pilgrim’s Pride or Tyson Foods proposals.”

The meetings with Tyson and Pilgrim’s Pride could be the start of Hillshire unwinding the Pinnacle deal, though, as the verbiage of the merger agreement with Pinnacle allows for the board to decide if a takeover offer is in the best interest of shareholders. Simply, if the Hillshire board views the Tyson or Pilgrim’s Pride proposal as better for shareholders, it can recommend investors vote down the Pinnacle acquisition and elect to approve one of the buyout offers. Pinnacle, the maker of Vlasic pickles, Wish-Bone salad dressing, and Birds Eye frozen vegetables, will receive a break-up payment of $163 million if that happens.

Investors are apparently thinking that there may be some more money brought to the table as Pilgrim’s Pride and Tyson duke it out to buy Hillshire. Shares leapt ahead another 9 percent this morning and are trading more than $3 higher than the $55 per share offer by Pilgrim’s Pride.  Shares of PPC have stepped back 1.6 percent in Tuesday trading, while TSN is down 2 percent.

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