Tyson Foods, Inc. (TSN) has finally completed its much talked about $8.55 billion merger with packaged meat producer The Hillshire Brands Company, thereby inking the biggest-ever deal in the meat industry.
In accordance with the merger agreement, Tyson purchased all of the outstanding shares of Hillshire Brands for $63.00 per share in cash. Following the completion of the merger, Hillshire Brands will no longer trade on the NYSE and the Chicago Stock Exchange and will become a wholly owned subsidiary of Tyson. Tyson has also formed a new leadership team to include the existing senior leaders from Tyson Foods and Hillshire Brands.
Tyson Foods had formally struck an acquisition deal with Hillshire Brands on Jul 2, after a long fought bidding war with poultry producer Pilgrim’s Pride Corp. (PPC). However, for the deal to materialize, Hillshire had to withdraw its offer to buy frozen foods maker Pinnacle Foods, Inc. (PF). Chicago-based Hillshire Brands had proposed to buy Pinnacle Foods for about $6.6 billion on May 12, including debt, in order to diversify its portfolio. (Read: Hillshire to Buy Pinnacle Foods for $6.6B).
Tyson also had to agree to divest its Heinold Hog Markets, a unit of Tyson Hog Markets to get the approval from the Antitrust Division of the Department of Justice. Heinold Hog Marketsbuys aged hogs from independent pig farmers for sale to sausage and other meat processors. Hillshire purchased hogs from Heinold Hog Markets to make sausages for its Jimmy Dean and Hillshire Farm brands. (Read: Tyson (TSN) Wins Antitrust Approval for Hillshire Merger).
The combined entity will boast a solid portfolio including recognized brands such as Tyson, Wright, Jimmy Dean, Ball Park, State Fair and Hillshire Farm. Moreover, it is expected to bring more than $40 billion in annual sales and generate synergy savings of $225 million in fiscal 2015 and more than $500 million by fiscal 2017.
Tyson’s merger with Hillshire Brands will give the company a stronger foothold in the prepared foods business. Tyson has been suffering from 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 merger would possibly make Tyson the industry leader in chicken production and increase its margins in other categories such as desserts and lunch meats, etc. Tyson will also 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.
Tyson currently holds a Zacks Rank #3 (Hold). Sanderson Farms Inc. (SAFM) is a better-ranked meat company with a Zacks Rank #1 (Strong Buy).
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