It looks like the fight for shelf space in the supermarket is heating up. Pilgrim’s Pride is looking to buy Hillshire Brands, which could derail its attempt to buy Pinnacle.
The Wall Street Journal had this story by Jacob Bunge and David Kesmodel:
Pilgrim’s Pride Corp. swooped in with a $5.5 billion offer for Hillshire Brands Co., maker of Jimmy Dean sausage and Ball Park hot dogs, a surprise bid that could upend Hillshire’s plan to expand its supermarket sway by buying Pinnacle Foods Inc.
Buying Hillshire would give Pilgrim’s, one of the largest chicken producers in the U.S., something it lacks: a portfolio of brand-name prepared meats, including Hillshire’s namesake lunch meats and Aidells sausages, as well as Sara Lee desserts. It would create the second biggest company in the U.S. meat market, after Tyson Foods Inc., with a combined $12 billion in annual revenue and a reach spanning farms, processing plants and supermarket shelves.
Two weeks ago, Hillshire pitched a different version of the same story to its own investors after the company unveiled a $4.6 billion deal for Pinnacle Foods, the maker of Wish-Bone salad dressing, Birds Eye frozen vegetables, Vlasic pickles and Log Cabin syrup. That deal would create a food company with $6.6 billion in annual revenue and greater clout in the grocery store.
Hillshire’s shares rose 22% on Tuesday’s news to $45.19 a share, above Pilgrim’s offer price of $45 a share. Pilgrim’s shares rose 1.7%, while Pinnacle’s fell 5.4%.
Michael J. de la Merced wrote for the New York Times that the move sets up a battle:
The bid by Pilgrim’s Pride and its majority owner, the Brazilian meatpacking titan JBS, sets up a potential battle over Hillshire, best known for its namesake hams and Jimmy Dean sausages.
They are hoping to take advantage of restiveness among Hillshire shareholders, who have questioned the rationale for a multibillion-dollar deal for Pinnacle, whose brands include Vlasic pickles and Birds Eye frozen vegetables. At least one large investor, the hedge fund Eminence Capital, has said publicly that it would vote against the earlier deal.
Under the terms of that deal, Hillshire would pay $18 a share in cash and half a share for each Pinnacle share. As of Friday, that offer was worth $36.51 a share.
By contrast, Pilgrim’s Pride plans to pay $45 a share in cash for Hillshire, about 22 percent more than the company’s closing share price on Friday and 25 percent higher than the volume-weighted average price over the last 10 trading days.
Together, the two companies would have had $12.4 billion in sales over the last 12 months.
The Reuters story by Lisa Baertlein and Devika Krishna Kumar pointed out that investors may have a say in which deal goes through as they sell off stock:
Investors were cool on a Hillshire-Pinnacle marriage and sent shares down roughly 6 percent in intraday trading when the proposal came on May 12.
Under that deal, Hillshire would suspend share buybacks, take on debt of $2.3 billion and expand into areas that are out of synch with U.S. consumers’ appetite for fresher food.
J.P. Morgan analyst Ken Goldman in a client note called Pilgrim’s offer both strategically and financially superior to the Pinnacle deal.
“That’s more like it,” Goldman said. “Joining two protein companies makes a lot more sense than marrying a meat company with one that has a focus on frozen vegetables.”
Pilgrim’s Chief Executive William Lovette said in a letter to Hillshire that “our proposal will no longer exist if the proposed acquisition of Pinnacle is consummated.”
Hillshire said in a statement that it continued to “strongly believe in the strategic merits and value creation potential” of the Pinnacle merger, but that it would thoroughly review the Pilgrim’s Pride proposal.
Jessica Wohl wrote for the Chicago Tribune that Hillshire has long been considered a takeover candidate:
We feel confident that Hillshire shareholders will recognize the superior value this proposal represents for them,” Pilgrim’s Pride CEO Bill Lovette said during a conference call on Tuesday morning.
Hillshire, created after conglomerate Sara Lee spun off its European coffee and tea business in 2012, has long been seen by Wall Street as a potential acquisition candidate. The company, known for products such as Jimmy Dean sausage and Ball Park hot dogs, has been beefing up with its own acquisitions as well.
“Consistent with its fiduciary duties, and in consultation with its independent financial and legal advisors, Hillshire Brands’ Board will thoroughly review the Pilgrim’s Pride proposal,” Hillshire said in a brief statement issued on Tuesday morning. Hillshire said it continues to believe in the strategic merits and potential value creation from its proposed acquisition of Pinnacle Foods.
Some analysts said the new offer was a better deal for Hillshire shareholders than the $4.3 billion offer Hillshire has pending to buy Pinnacle Foods. They also said that it is possible other bidders will emerge for Hillshire, including Arkansas-based Tyson, the world’s largest poultry producer ahead of Pilgrim’s Pride.
It seems that this latest twist could be just the beginning for the fight for Hillshire. As Wall Street looks for ways to boost fees a good long takeover battle could be a good way to do that. Also investors are likely to be the big winners as a fight will only drive up the price.
