Pinnacle Foods’ $6.6 Billion Sale to Hillshire Spells Windfall for Blackstone


PinnaclePinnacle Foods’ $6.6 billion agreement to be bought by Hillshire is a deal that will spell huge profits for Blackstone LLP. Blackstone, which owns 51 percent of Pinnacle, will realize a nearly 300 percent profit upon the completion of the sale. Deals like the recent deal with Hillshire are what allowed Blackstone to return more than $11 billion to its investors last quarter.

This news of yet another huge consolidation in the food industry may be a bit more interesting than usual as it comes on the heels of the landmark legislation passed in Vermont recently. Vermont, with its recent passing of an unconditional GMO labeling law, became the first State in the Union to successfully pass such a law. Although the law has officially found its way onto the books, the Attorney General expects it to face significant challenges before it is here to stay. The challenges are expected to be brought by large food companies, the likes of Monsanto, Hillshire (which is buying Pinnacle Foods) or other companies known to lobby against GMO labeling (See Link Below).

The recent multi-billion dollar deal also serves to add to the now-familiar trend of consolidation within nearly every industry both domestic and international. The big winner in the agreed-upon Pinnacle-Hillshire deal will certainly be Blackstone LLP. Blackstone acquired Pinnacle for just a fraction of its more than $6 billion sale price. The investment firm paid just over $400 million to initially acquire the food company in a leveraged buyout. Later, Blackstone increased its investment as the food company acquired Birds Eye Foods. Now, as Hillshire plans to purchase Pinnacle Foods for $6.6 billion, Blackstone will be smiling all the way to the bank as it will see a healthy 300 percent gain from the deal.

For Hillshire, the deal means that the food company will be increasing its presence in supermarkets to areas outside of the deli aisle. With the multi-billion dollar acquisition, Hillshire will now be hoping to quickly capitalize on synergies and cost savings that it believes will take it to new heights in the food industry. The move comes at a critical time, as many Americans are now becoming more conscious of the quantity of meat they consume. By Hillshire laying out $4.3 billion for Pinnalce Foods, the company hopes to be able to remain competitive in a rapidly consolidating industry. Pinnacle is known for its vegetable brands, Vlasic Pickles, and salad dressings, all of which Hillshire hopes will provide profitable synergies in the near future.

In addition to announcing its agreement to acquire Pinnalce, Hillshire also previously stated that it will be buying Van’s Natural Foods. When viewed in light of the increasing awareness and movement against products containing Genetically Modified Organisms (GMOs), the recent moves by Hillshire might make more sense. In addition to much needed cost savings, and valuable synergies, branching out might help Hillshire’s image as well. With Vermont’s recent move to actually put an unconditional GMO labeling law on its books, it appears that the ‘Food Fights’ are heating up. Hillshire has reportedly lobbied against such labeling laws in the past, and perhaps the new purchases will remake the company’s image into a more broad and more “healthy” brand. Offering products such as vegetables, salad dressings, and pickles, may help to make the Hillshire brand a bit more diverse and palatable to health-conscious consumers.

As it stands, Pinnacle Foods has agreed to a deal to be bought by Hillshire for a grand total of $6.6 billion (with debt included). Blackstone LLP, which owns 51 percent of Pinnacle, will make out 300 percent higher than its initial investment, and Hillshire hopes to cash in on cost savings and synergies. Consumers however, especially those highly aware of of the GMO “Food Fights,” will likely not be fooled into forgetting where exactly Hillshire has stood in the the GMO struggle, no matter how many “Veggie” products the company acquires. Time will tell whether Hillshire will become as big a winner as Blackstone as a result of this multi-billion dollar deal.

By Daniel Worku

Reuters

WSJ

Chicago Tribune

Inspiration Green (Companies against GMO labeling)

 

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