Hillshire Says Tyson Foods Bid Superior to Pinnacle Deal
Hillshire Brands Co. (HSH), the maker of Jimmy Dean sausages, withdrew support for a merger with Pinnacle Foods Inc. (PF) and said a $7.7 billion takeover bid from Tyson Foods Inc. (TSN) is a better deal for its investors.
Tyson’s $63-a-share offer constitutes a superior proposal and Hillshire recommends that its shareholders vote against buying Pinnacle, Chicago-based Hillshire said today in a statement.
The announcement doesn’t yet mean Tyson and Hillshire have a deal. Hillshire said it doesn’t yet have the right to terminate its merger agreement with Pinnacle, which was agreed upon less than three weeks before Tyson and Pilgrim’s Pride Corp. (PPC) each made unsolicited offers for Hillshire. Tyson and Pilgrim’s demanded the abandonment of the $5.7 billion Pinnacle deal as a condition of their proposals.
If Pinnacle agrees to the scrapping of the deal prior to a Hillshire shareholder vote, it may get a $163 million termination fee. Hillshire said it wrote to Pinnacle’s board June 9 stating its intention to withdraw support for the combination of the companies.
“We hope Pinnacle Foods will promptly accept the termination fee and not delay the ability of Hillshire Brands’ shareholders to benefit from Tyson Foods’ superior offer,” Tyson Chief Executive Officer Donnie Smith said today in a statement.
Tyson trumped Pilgrim’s, the U.S. chicken producer controlled by Brazil’s JBS SA (JBSS3), following a final round of bidding for Hillshire that concluded June 8. Pilgrim’s withdrew after declining to increase its bid for a second time. Its last offer was $55 a share.
Buying Hillshire will enable Springdale, Arkansas-based Tyson to expand its value-added prepared foods business and reduce its reliance on the cyclical commodity-meat business. Hillshire will be the biggest deal for Tyson, the largest U.S. meat producer.
“The Tyson offer is pretty attractive, so it makes sense Hillshire will pursue that as a better way to create value for shareholders as opposed to the Pinnacle deal,” Ken Perkins, a Chicago-based analyst for Morningstar Inc., said by phone today. “I assume Pinnacle will continue to try to improve their brand positioning and there are maybe other suitors out there that would want to buy them.”
Phone calls seeking a comment from Thuy-An Wilkins, a spokeswoman for Pinnacle, weren’t immediately returned.
Hillshire rose 0.3 percent to $61.97 at the close in New York, Pinnacle gained 0.9 percent to $33.34 and Tyson dropped 0.8 percent to $35.15.
Hillshire was known as Sara Lee Corp. before spinning off its tea and coffee segment and renaming itself Hillshire Brands in June 2012. It has since focused on improving lunch-meat quality, creating new varieties of hot dogs and winning over more customers with lower-calorie breakfast sandwiches.
The move for Parsippany, New Jersey-based Pinnacle, producer of brands including Vlasic pickles and Wish-Bone salad dressings, had frustrated some Hillshire shareholders. Ricky Sandler, the chief executive officer of activist investor and Hillshire shareholder Eminence Capital LLC, criticized the Pinnacle deal for being too expensive and said his firm would vote against it.
Centerview Partners LLC and Goldman Sachs Group Inc. are Hillshire’s advisers while Morgan Stanley and JPMorgan Chase & Co. are advising Tyson.
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