Tyson Enters Meat Brawl with Hillshire Bid

02:20PM May 29, 2014
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Hillshire Brands is at the center of a barnyard brawl.

Tyson Foods, the largest U.S. meat processor, on Thursday made a $6.2 billion offer for the maker Jimmy Dean sausages and Ball Park hot dogs, becoming the fourth party in what was already a three-way acquisition drama.

Tyson's offer comes two days after poultry producer Pilgrim's Pride made an unsolicited $5.58 billion bid for Hillshire. Pilgrim's Pride is majority-owned by Brazilian meat giant JBS.

The takeover bids for Hillshire are driven by the higher profitability of brand-name processed products like Jimmy Dean breakfast sandwiches compared with fresh meat like chicken breasts.

Both offers are contingent on Hillshire scrapping its plan to acquire Pinnacle Foods, which makes Birds Eye frozen vegetables and Wish-Bone salad dressings, for $4.23 billion. Hillshire, which has been struggling with weak sales, said the move would help it grow in other areas of the supermarket.

Hillshire said earlier it strongly believes in its deal with Pinnacle Foods but was reviewing Pilgrim's offer. The Chicago-based company said Thursday it would review Tyson's offer as well, but made no mention of its Pinnacle deal. Pilgrim's Pride said it is considering its options and will "update the markets in due course."

In a note earlier this week, J.P. Morgan analyst Ken Goldman had noted that 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.

Tyson and other meat producers are facing changing consumer tastes and volatile meat prices. In its most recent quarter, Tyson's net income more than doubled, benefiting from strong demand for chicken and higher prices for beef and pork. But earnings fell short of expectations, due in part to higher costs.

The move by Tyson could be a defensive one to prevent rival JBS from becoming an even bigger player.

Tyson's offer is $50 per share. That's $5 per share higher than Pilgrim's Pride offer earlier this week. 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 Co. jumped $7.02, or 15.6 percent, to $51.84 - slightly above the latest offer price in morning trading.

Meanwhile, Tyson Foods Inc. shares rose $2.55, or 6.3 percent, to $43.31. Pilgrim's Pride Corp. shares fell 37 cents to $25.01 and Pinnacle Foods Inc. shares rose 27 cents to $31.65.