Hillshire Brands to Buy Pinnacle Foods for $4.3 Billion

Jimmy Dean, meet Mrs. Butterworth.

Hillshire Brands Co. agreed to buy Pinnacle Foods Inc. for about $4.3 billion today, bringing together the sausage and syrup brands while creating a company that sells everything from salami to baking mixes.

The acquisition is Hillshire Chief Executive Officer Sean Connolly’s third in the past year as he works to reduce his company’s dependence on Jimmy Dean meats and add the healthy products consumers are increasingly seeking. While Pinnacle owns brands from Vlasic pickles to Wish-Bone salad dressings, it’s the company’s Birds Eye frozen vegetables that Connolly may have been most interested in.

“Frozen food is an attractive platform to provide healthy options,” Nicholas Fereday, an analyst at Rabobank International in New York, said in an e-mail. “They see this as one of the more sustainable food trends, not a fad.”

Pinnacle investors will receive $18 in cash and half a share of Hillshire Brands for every Pinnacle share they own, the companies said today in a statement. The total amount is almost 20 percent higher than Pinnacle’s closing price on May 9, the most recent trading day. Including debt, the deal is valued at about $6.6 billion.

Shares of Chicago-based Hillshire fell 3.2 percent to $35.76 at the close in New York. Pinnacle, based in Parsippany, New Jersey, jumped 13 percent to $34.47.

Pinnacle is selling itself after only about a year as a publicly traded company. Blackstone Group LP had acquired the foodmaker for $2.2 billion about seven years ago and took it public again in March 2013.

Duncan Hines

Pinnacle serves more than 85 percent of American households and has a No. 1 or No. 2 market position in 10 of 13 grocery categories in which it competes, according to the statement. The company’s other brands include Mrs. Butterworth’s and Log Cabin syrups, Duncan Hines baking mixes, Van de Kamp’s frozen fish and Lender’s bagels.

The combination with Hillshire is expected to produce $140 million in annual savings from improving the supply chain and consolidating expenses.

Hillshire, which had about $4 billion in revenue in fiscal year 2013, agreed to buy Van’s Natural Foods for about $165 million last month. The company also bought gourmet jerky maker Golden Island for $35 million in September. Pinnacle last year bought Unilever’s Wish-Bone salad dressings unit for $580 million.

Both Pinnacle and Hillshire have been cited as possible bidders for Unilever’s Ragu pasta sauces unit. Unilever confirmed last month that it was reviewing Ragu and the Slim Fast diet-food unit as part of CEO Paul Polman’s ongoing pruning of food brands. Ragu may fetch as much as $2 billion, people familiar with the matter have said.

Boards Approve

Hillshire’s purchase of Pinnacle reflects a multiple of 9.6 times adjusted earnings before interest, taxes, depreciation and amortization, the companies said. Both boards have approved the deal, which is expected to close by September.

Affiliates of Blackstone, which own about 51 percent of Pinnacle Foods’ outstanding common stock, have agreed to vote in favor of the transaction, according to the statement.

Hillshire has committed financing from Goldman Sachs Group Inc. The company intends to maintain its current annual dividend as it undertakes the merger, though it will suspend a stock buyback program.

Centerview Partners and Goldman Sachs are acting as financial advisers to Hillshire. Bank of America Corp. and Blackstone Advisory Partners are advising Pinnacle.

Sara Lee

Hillshire was known as Sara Lee Corp. before spinning off its tea and coffee segment. It renamed itself Hillshire in June 2012 and appointed Connolly as CEO. The company has since focused on improving lunch-meat quality, creating new hot-dog flavors and winning over more customers with lower-calorie breakfast sandwiches. The company’s Jimmy Dean Delights bacon, egg and cheese breakfast sandwiches have 230 calories.

The deal gives Hillshire more scale in the frozen-foods aisle, which will help it gain more shelf space and better pricing, and provides opportunities to innovate, Connolly said in an interview.

“Solving the vegetable gap is a significant issue for consumers,” Connolly said. “They know they need to get a certain number of servings of vegetables in their diet every day, and they come up short most days.”