Tyson Agrees to Buy Hillshire After Pinnacle Deal Scrapped

Tyson Foods Inc., the largest U.S. meat producer, agreed to acquire Jimmy Dean sausage maker Hillshire Brands Co. for about $7.8 billion after the target company scrapped another merger pact.

Tyson’s $63-a-share takeover of Hillshire is anticipated to close by Sept. 27, the companies said today in a statement. Springdale, Arkansas-based Tyson will pay a $163 million fee related to the termination of Hillshire’s merger accord with Pinnacle Foods Inc. The dissolution of the Pinnacle deal, announced June 30, was a condition of Tyson’s takeover.

Buying Hillshire will enable Tyson to expand further into the market for prepared, processed foods by adding retail brands such as Ball Park hot dogs and State Fair corn dogs. The deal will also reduce Tyson’s dependence on its commodity meat-packing business.

Tyson made an initial, unsolicited $50-a-share offer for Chicago-based Hillshire on May 29, two days after another unsolicited bid from Pilgrim’s Pride Corp., a company controlled by Brazil’s JBS SA. Tyson raised its offer on June 9, while Pilgrim’s withdrew from the bidding.

While Hillshire will complement Tyson’s business with different products, cost savings from synergies will determine if the company is worth the suitor’s bid, Liang Feng, a Chicago-based analyst at Morningstar Inc., said. Tyson’s offer is 70 percent higher than Hillshire’s price before Pilgrim’s Pride made the first bid on May 27.

“It’s an attractive complementary piece to Tyson’s business but the concern is the rich premium the company paid,” Feng, who rates Hillshire hold, said by phone today. “We’ll be waiting to hear from Tyson about what they’ve learned from looking deeper in Hillshire’s books.”

Stock Price

Hillshire rose 0.2 percent to $62.77 at the close in New York, the highest on record. Tyson climbed 2.9 percent to $38.96.

On June 16, Hillshire withdrew its support for the Pinnacle deal -- a merger agreed on before it became a target of competing takeover bids -- and said the Tyson proposal is a better deal for its shareholders.

Centerview Partners LLC and Goldman Sachs Group Inc. are Hillshire’s advisers and Skadden, Arps, Slate, Meagher & Flom LLP is its legal adviser. Morgan Stanley and JPMorgan Chase & Co. are advising Tyson and Davis Polk & Wardwell LLP is its legal adviser.

The value of the deal including Hillshire’s net debt is $8.55 billion, both companies said in today’s statement.

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