Business

Tyson makes competing $6.1-billion offer for Hillshire Brands

BusinessFood IndustrySara Lee CorporationPilgrim's Corp.Pinnacle Foods IncorporatedMorningstar Incorporated
Offers by Tyson and Pilgrim's Pride for Hillshire would require it to abandon plans to buy Pinnacle Foods
Tyson makes offer to buy Hillshire, whose brands include Hillshire Farms and Sara Lee

The food fight over Hillshire Brands Co. is getting messier.

The Chicago company, maker of Ball Park franks and Jimmy Dean sausage, has received unsolicited takeover offers from two rival meat-processing heavyweights.

Tyson Foods Inc. on Thursday offered an all-cash deal of $6.1 billion, or $50 a share. That topped an offer that came just two days earlier from Pilgrim's Pride Corp. of $45 a share, or about $5.5 billion.

The battle being waged will ultimately play out in the grocery aisles where Americans shop. At stake is a pantry full of well-known brands including Hillshire Farm processed meats and Sara Lee desserts.

Tyson and Pilgrim's are seeking to expand beyond meat production by adding packaged foods that produce bigger profits than do basic cuts of chicken, beef and pork.

"Tyson and Pilgrim's have been looking for a while to diversify away from the more commoditized categories they are currently in," said Liang Feng, an equity analyst at Morningstar Inc. "Both firms could consolidate their supply chains and gain more leverage over retailers" by buying Hillshire.

In response, Hillshire said Thursday that would it would thoroughly review Tyson's proposal, repeating what it had said about the Pilgrim's bid.

The competing offers are further complicated because both require Hillshire to abandon its own plans to buy Pinnacle Foods Inc., owner of brands such as Duncan Hines, Mrs. Butterworth's and Vlasic pickles.

When Hillshire announced the deal this month, Wall Street was unimpressed. The stock price barely budged, and analysts questioned the value of joining forces with a company positioned largely in prepared and frozen vegetables.

"Neither Tyson nor Pilgrim wanted to be a part of Pinnacle. That forced their hand," analyst Feng said. "Both saw this as an opportunity to acquire a complementary piece before it's too late."

Shares of Hillshire on Thursday jumped $7.77, or 17.3%, to $52.76. That level, above the offering price from Tyson, suggests that investors are anticipating a higher bid.

Industry watchers say Tyson and Pilgrim's, which is owned by Brazilian meat processor JBS, are trying to get into the more stable prepared food business and expand beyond the sometimes volatile sector of fresh meat.

Tyson, the largest U.S. meat processor by sales, and Pilgrim's, the world's second-largest chicken producer after Tyson, are vulnerable to weather or other adverse events that squeeze beef, pork and poultry supplies.

An unrelenting drought in California and other parts of the country has led to ranchers thinning their cattle herds to the lowest level in decades and shrunk the country's beef supply. A second outbreak of a deadly pig virus could also send pork prices soaring this summer, analysts said.

In a Thursday call with analysts, Tyson Chief Executive Donald Smith said the combination with Hillshire would provide a competitive edge that is "especially critical in times of short protein supply."

Tyson already sells some prepared food items including pre-grilled chicken fillets, pork sausages and Any'tizer snacks such as chicken wings. But the Springdale, Ark., company said acquiring Hillshire's array of morning foods would enable it "to capture opportunities from shifting consumer trends."

Breakfast is a prime area where packaged food companies can still woo consumers with increasingly discerning palates, experts said.

"A significant amount of breakfast eating is still at home as opposed to going out," said Jim Hertel, a managing partner at food retail consulting firm Willard Bishop. That's "compared to lunch, when a significant portion of the population is at work and not going home to eat. Dinner is also heavily competitive."

Hillshire was created after Sara Lee Corp. spun off its European coffee and tea business in 2012. Analysts have long viewed it as a potential takeover target, although Hillshire has also purchased other companies in an effort to move into areas such as healthy food.

Tyson's bid is 35% above Hillshire's May 9 closing price, before it announced the Pinnacle acquisition. The $45-a-share bid from Pilgrim's represents a 21.8% premium.

Tyson shares climbed $2.50 to $43.25 on Thursday. Pilgrim's stock slid 29 cents, or 1.1%, to $25.09.

Analysts said they could not predict how any of the companies involved might respond. Pilgrim's did not return a request for comment about potentially submitting a higher offer.

"It's all speculation at this point," Feng said. "I don't think either party wants to enter into a bidding war."

shan.li@latimes.com

Twitter: @ByShanLi

Copyright © 2014, Los Angeles Times
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BusinessFood IndustrySara Lee CorporationPilgrim's Corp.Pinnacle Foods IncorporatedMorningstar Incorporated
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