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Pilgrim's Pride makes bid for packaged food firm Hillshire

BusinessCompanies and CorporationsMergers, Acquisitions and TakeoversFood IndustryShareholdersConsumer Goods IndustriesPinnacle Foods Incorporated
Pilgrim's $45-a-share cash offer represents a premium of about 22% to Hillshire's closing stock price
Other bidders may emerge for Hillshire Brands, including Tyson, the world's largest poultry producer

Poultry producer Pilgrim's Pride Corp. has made an unsolicited bid to buy packaged food company Hillshire Brands Co. in a deal valued at nearly $5.7 billion plus debt, marking the latest shake-up in the food industry.

Hillshire, based in Chicago, said it will review the proposal but added that it still believes in its plan to buy Pinnacle Foods — owner of brands such as Birds Eye and Vlasic pickles — which was announced two weeks ago. Pilgrim's Pride's offer is dependent on Hillshire dropping the proposed transaction.

The $45-a-share cash offer, which Pilgrim's Pride announced Tuesday, represents a premium of about 22% to Hillshire's closing stock price Friday.

Shares of Hillshire jumped 22% to $45.19 on Tuesday, hovering above the offer price, a signal Wall Street suspects that bidding could move higher or another buyer could emerge. Pilgrim's Pride shares were up 1.7% at $25.52 after rising higher earlier in the day.

"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 Tuesday.

Pilgrim's Pride, based in Colorado, said that it would keep Chicago as a major center of the combined company's North American operations, if the deal proceeds.

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. 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.

Shares of Pinnacle Foods plunged 5.4% to $31.48. For Pilgrim's Pride to acquire Hillshire, Pilgrim's Pride has offered to pay the $163-million termination fee Hillshire would owe Pinnacle to break off that pending deal. Pilgrim's Pride wants to buy Hillshire as it is now, without adding Pinnacle.

An acquisition of Hillshire would allow Pilgrim's Pride to expand its business in branded foods. Right now, 80% of Pilgrim's Pride's sales are in fresh poultry and 20% are in prepared foods. The company hopes to use its strength in the food service and supermarket deli areas with Hillshire's strength in retail, Lovette said.

Pilgrim's Pride said it wants to sit down with Hillshire soon to discuss the deal. It aims to close the deal in the third quarter of 2014.

"For Hillshire shareholders, our proposal provides a substantial premium, greater certainty and immediate cash value for their shares," Lovette said. "We have long respected the Hillshire business and we are confident that Hillshire's board and shareholders will find our all-cash premium proposal to be superior to the pending acquisition of Pinnacle."

The offer from Pilgrim's Pride is a preferable option for Hillshire shareholders to the Pinnacle deal both strategically and financially, J.P. Morgan analyst Ken Goldman said. It makes more sense to combine two meat-focused companies than a company focused on meat and one focused on frozen vegetables, Goldman said.

Besides Tyson, other possible bidders for Hillshire could include Cargill, Sanderson Farms and cereal maker Kellogg, Goldman said.

Hillshire, under Chief Executive Sean Connolly, has been trying to transform itself into a company with a broader portfolio of meat and other foods. On May 12, Hillshire said it planned to buy Pinnacle for about $4.3 billion in cash and stock, plus the assumption of nearly $2.4 billion in debt.

Pilgrim's Pride said its offer for Hillshire had the support of Brazil's JBS, its majority owner and the world's largest meat processor.

In addition to the $45 a share Pilgrim's Pride is offering for Hillshire, implying a value of roughly $5.67 billion, it would assume $553 million in net debt. If Pilgrim's Pride were also to pay the $163-million fee from the termination of the Hillshire-Pinnacle deal, the total outlay would reach about $6.39 billion.

Pilgrim's Pride said it expects to pay for the deal with existing cash and third-party financing.

The proposed deal comes after several changes in the food industry. Among them in early May, Mondelez International announced a restructuring and said it plans to combine its coffee business with D.E. Master Blenders 1753 B.V.

In addition to Hillshire's proposal to buy Pinnacle Foods, the company this month completed its $165-million acquisition of Van's Natural Foods from Catterton Partners.

jwohl@tribune.com

Copyright © 2014, Los Angeles Times
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