Meat processor Tyson Foods, Inc. (TSN) has finally emerged as the winner in the bidding war to buy packaged meat producer The Hillshire Brands Company (HSH). Tyson had been competing with rival poultry producer Pilgrim’s Pride Corp. (PPC). With the final cash offer of $63 per share announced yesterday, Tyson won the deal and wrapped up the bidding process. Pilgrim’s Pride, on the other hand, withdrew from the bid.
Tyson raised its bid to acquire Hillshire’s top meat brands like Jimmy Dean sausages and Ball Park hot dogs, outbidding the offer placed by chicken processor Pilgrim’s Pride on Jun 3. Tyson values the company at more than $7.7 billion. The current offer of Tyson is definitely enticing as compared to Pilgrim’s Pride’s raised offer of $55 per share which valued the company at $6.7 billion.
Tyson Foods had initially offered $50 per share in cash for Hillshire Brands on May 29, which was a counter bid in response to Pilgrim’s Pride’s offer of $45 per share in cash announced on May 27 for all of the outstanding shares of Hillshire.
However, the deal has not been sealed yet. Hillshire’s board has not approved the merger as Hillshire Brands is yet to terminate its deal with Pinnacle Foods Inc. (PF), which is an important condition to go ahead with the Tyson deal. Hillshire intended to buy Pinnacle for $163 million as announced on May 12 to bolster its presence across the frozen, refrigerated and dry grocery categories.
Tyson, like Pilgrim's Pride, is looking for opportunities to expand its fresh meat business. Both the companies have strained beef, pork and poultry supplies lately. Moreover, an unrelenting drought in California and a second outbreak of a deadly pig virus led to soaring pig prices.
The purchase of Hillshire would make Tyson the industry leader in chicken production and increase its margins in other categories such as desserts and lunch meats to name a few. Tyson will benefit from the strength of Hillshire's products in the breakfast category where the former has little presence. The purchase would also improve Tyson’s economy of scale with more customers and shelf space. However, for that, Hillshire has to terminate its deal with Pinnacle Foods.
Tyson holds a Zacks Rank #3 (Hold); while Hillshire Brands carries a Zacks Rank #2 (Buy).
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