Tyson Foods pork production

Tyson Foods Enters Battle for Hillshire Brands

May 29, 2014
The Tyson bid included $6.1 billion in cash for all of the shares of Hillshire, with the rest of the offer's valuation apparently coming from debt assumed in the deal.

NEW YORK - Meat processing giant Tyson Foods (IW 500/41) launched a battle with Brazil's JBS Thursday over Hillshire Brands (IW 500/228) with a $6.8 billion bid for the maker of popular sausages and hot dogs.

Tyson, the world's second-largest meat processor after JBS, topped the $6.4 billion bid for Hillshire that was made Tuesday by JBS's U.S. subsidiary Pilgrim's Pride (IW 500/131).

Both are seeking a solid foothold in the U.S. market for branded prepared foods: Hillshire owns popular brands like Ballpark hot dogs, Jimmy Dean and Aidells sausages, and Sara Lee desserts.

"The combination of Tyson and Hillshire would reposition Tyson as a clear leader in the retail sale of prepared foods, with a complementary portfolio of well-recognized brands and private-label products," said Tyson CEO Donnie Smith.

"We believe that there is a strong strategic, financial and operational rationale for the combination of Tyson and Hillshire."

The Tyson bid included $6.1 billion in cash for all of the shares of Hillshire, with the rest of the offer's valuation apparently coming from debt assumed in the deal.

Pilgrim's Pride, the leading U.S. chicken processor, offered $45 a share for Hillshire on Tuesday.

Meanwhile, Hillshire Pursues Pinnacle Foods

Both bids have interrupted Hillshire's own effort to buy rival Pinnacle Foods for $6.6 billion, a deal that some Hillshire shareholders have criticized as not particularly strategically beneficial and that would add to the company's debt.

Tyson or Pilgrim's would have to pay a $163 million termination fee to Pinnacle if either's bid for Hillshire is accepted.

Hillshire had no immediate reaction to the Tyson offer. On Tuesday it said it would "thoroughly review" the Pilgrim's offer, but remained focused on its own move for Pinnacle.

"We continue to strongly believe in the strategic merits and value creation potential provided by the proposed transaction with Pinnacle Foods."

Tyson's offer is about a 35% premium to Hillshire's share price of $36.95 on May 9, the day before Hillshire announced its deal to buy Pinnacle.

Both Tyson and Pilgrim's Pride said their offers are better deals for Hillshire shareholders than its own move for Pinnacle.

Hillshire, with annual sales of $3.9 billion, is a relative minnow compared with both companies. Tyson's annual sales for the most recent fiscal year were $34.4 billion, while Pilgrim's Pride's were $8.4 billion. JBS, which owns 75.5% of Pilgrim's, reported global sales last year of about $40 billion.

Tyson said combining with Hillshire would help reposition it in the downstream sector of prepared foods, where margins are higher than for processed meat.

It argued that its proposal "provides Hillshire shareholders with an immediate cash premium for their shares" that is better, and more certain, than they would gain from a Hillshire-Pinnacle combination.

Analysts at Trefis said branded packaged meat like Hillshire's Jimmy Dean sausages earns profit margins of 11% to 16%, compared with the 7% to 10% range for meat processing.

Meat processing is also "fraught with inherent problems such as volatile feed costs (mostly corn and soybeans) and negligible pricing power," Trefis said in a client note.

Copyright Agence France-Presse, 2014

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