Hillshire Farm Reviews Bid as Stock Soars

Hillshire Farm

The Hillshire Brands Company, which owns Hillshire Farm and other iconic food brands, has fallen into a good, old-fashioned business love triangle. Hillshire issued a statement Tuesday that it would review the bid from Pilgrim’s Pride, sending Hillshire Farm’s stock soaring by over 21 percent. Pilgrim’s Pride is offering $45 per share ($6.4 billion total), an unsolicited offer that came after the announcement of a deal with Pinnacle Foods, but with the added stipulation that Hillshire dissolves its deal with Pinnacle.

The acquisition of Pinnacle will cost Hillshire Farm $6.6 billion in cash and stocks, and will include Pinnacle’s debt. Pinnacle’s stock rose 20 percent a few weeks ago after the deal went public, but has dropped in the wake of Pilgrim’s proposal. The merged companies would create $140 million in cost savings, according to Hillshire. Pinnacle, which makes Aunt Jemima breakfast foods, says it serves over 85 percent of American households.

Hillshire had a productive fiscal year 2013, generating roughly $4 billion in sales. The Chicago-based company employs more than 9,000 people. Among its notable brands are Jimmy Dean, Ball Park, State Fair, and Sara Lee.

A merger between Pilgrim’s Pride and Hillshire Brands would have a combined revenue of $12.4 billion, as well as a combined EBITDA (earnings before interest, taxes, depreciation, and amortization) of $1.4 billion, according to the Colorado-based chicken giant. Pilgrim’s offer of $6.4 billion includes a 25 percent premium to Hillshire’s weighted average cost for the 10 days after broadcasting the Pinnacle deal. Pilgrim’s also offered to cover the $163 million penalty Hillshire Farm would owe Pinnacle if the deal is broken.

The partnership would create a “fully integrated protein leader” according to a statement by Pilgrim’s CEO Bill Lovette on Tuesday morning. Lovette is confident the deal could go through as quickly as by the third quarter of this year. Hillshire, however, has only agreed to review the bid, despite its soaring stock worth.

Pilgrim’s Pride has experienced its own market gains. Its shares jumped 3.2 percent pre-market on Tuesday, opening at $26.21 per share. As of late Tuesday morning, shares were up approximately 6 percent for Pilgrim’s and over 21 percent for Hillshire Farm, but down nearly 7 percent for Pinnacle Foods.

For yearly gains, Pilgrim’s Pride comes out on top with a 57 percent return so far in 2014, while Hillshire Farm and Pinnacle have experience 10.9 and 21.6 percent gains, respectively, in that time period. Lovette, in a note to Hillshire president and CEO Sean Connolly, pointed out that the agreement between Hillshire and Pinnacle includes a “superior proposal” clause, and stated that he believed Pilgrim’s offer to be of superior value to Hillshire shareholders.

Connolly, meanwhile, issued previous statements regarding the Pinnacle deal, saying it would give the new company a stronger position in the frozen food market, and will create new opportunities in the refrigerated and center aisles. Hillshire also announced last month that it would buy Van’s Natural Foods, as it hopes to add a more healthy breakfast food line to its brands.

Hillshire Farm will be working with Centerview Partners and Goldman, Sachs & Co. as financial advisors and Skadden, Arps, Slate, Meagher & Flom LLP as legal advisor while reviewing the bid from Pilgrim’s Pride, and has only expressed mild interest despite its soaring stock. Whether the proposal from Pilgrim’s will be deemed superior in terms of the contract clause remains to be seen.

By Christina Jones

Sources:
Forbes
The Wall Street Journal: Market Watch
LA Times
InvestorPlace

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