Tyson Enters Meaty Brawl with Bid for Hillshire Brands

Tyson makes rival $6.2 billion bid for Hillshire Brands
Toby Talbot/AP
By MAE ANDERSON and CANDICE CHOI

NEW YORK -- Hillshire Brands is at the center of a barnyard brawl.

Tyson Foods, the largest U.S. meat processor, has made a $6.2 billion offer for the maker Jimmy Dean sausages and Ball Park hot dogs, topping a bid made two days earlier by rival poultry producer Pilgrim's Pride. Based in Greeley, Colorado, Pilgrim's Pride is owned by Brazilian meat giant JBS.

The takeover bids for Hillshire Brands (HSH) by the two major meat processors are being driven by the desirability of brand-name processed products like Jimmy Dean breakfast sandwiches. The convenience foods are more profitable than fresh meat, such as chicken breasts, where there isn't as much wiggle room to pad prices.

Selling more types of products also would give the companies a buffer from volatile price swings of fresh meat. When beef prices rise and shoppers turn to other meats, the companies can sell more chicken or bacon, for example.

While both Tyson (TSN) and Pilgrim's (PPC) sell some prepared products like frozen fried chicken pieces, their main business has been as suppliers of fresh meat for supermarkets and restaurant chains.

Both offers are contingent on Hillshire abandoning its plan to acquire Pinnacle Foods (PF), which makes Birds Eye frozen vegetables and Wish-Bone salad dressings. Hillshire had been trying to diversify its own portfolio by moving into other areas of the supermarket with the $4.23 billion acquisition.

But some investors questioned whether combining with Pinnacle made sense, given the sharp differences in product categories and the outdated image of some Pinnacle brands, such as Hungry Man frozen dinners.

Hillshire said earlier it strongly believes in its deal with Pinnacle Foods but would review Pilgrim's offer. In its latest statement Thursday, the Chicago-based company said it would review Tyson's offer as well and made no mention of its Pinnacle deal.

Pilgrim's Pride said it is considering its options and will "update the markets in due course," making no mention of whether it planned to raise its offer. Pinnacle didn't respond to request for comment.

Earlier this week, J.P. Morgan analyst Ken Goldman had noted other potential suitors for Hillshire could emerge, including Tyson and Cargill. Goldman suspended his ratings for Hillshire and Tyson on Thursday because of J.P. Morgan's role in the deal on behalf of Tyson.

A representative for Cargill declined to comment.

Tyson and other meat producers are facing changing consumer tastes and volatile meat prices. In addition to helping profit margins, moving more heavily into branded products is seen as helping to diversify portfolios and creating more stability in financial results. The offer by Tyson could also be a defensive move to prevent rival JBS from becoming an even bigger player.

Tyson's offer of $50 a share. That's $5 a share higher then Pilgrim's Pride's bid. Hillshire has about 124 million shares outstanding, according to SEC filings. Tyson values the deal at $6.8 billion, including debt.

Tyson's offer is a 35 percent premium to Hillshire's closing price May 9, the day before Hillshire announced its bid for Pinnacle.

Shares of The Hillshire Brands jumped $7.69, or 17 percent, to $52.50, above the latest offer price.

Meanwhile, Tyson Foods shares rose nearly 8 percent to $43.85. Shares of Pilgrim's Pride fell 1 percent to $25.01 and shares of Pinnacle Foods rose 1 percent to $31.80.


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