Shares of packaged meat producer
The Hillshire Brands Company
) reached 52-week high of $45.52 on May 27 after
Pilgrim's Pride Corp.
) proposed to buy Hillshire Brands in an all-cash deal. Shares of
Hillshire Brands soared 22% on the news and eventually closed at
On May 27, this chicken processor Pilgrim's Pride made an
unsolicited bid to acquire Hillshire Brands for approximately $6.4
billion. The deal follows the latter's pending acquisition of
Pinnacle Foods, Inc
) announced on May 12.
Per the deal, Pilgrim's Pride will offer $45 per share in cash
for all of the outstanding shares of Hillshire. The transaction
values Hillshire at 12.5x its trailing twelve-month adjusted EBITDA
as of Mar 29, 2014, including the $163 million termination fee
payable to Pinnacle Foods. Pilgrim's Pride is expected to finance
the deal using a combination of available cash and debt. The deal
is expected to close in the third quarter of 2014, after Hillshire
terminates its deal with Pinnacle Foods.
The deal is a strategic fit to both the companies and their
combination is expected to create a strong meat company with
complementary brands providing consistent earnings. Pilgrim's Pride
will benefit from Hillshire's strong innovation program and
marketing abilities, which will complement its operational
efficiency. Both the companies have solid brands and customer base.
Moreover, the combined companies will be able to meet the growing
demand of meat products.
Pilgrim's Pride expects its offer to be a better alternative to
Hillshire's pending acquisition of Pinnacle, as this proposal
provides a substantial premium and immediate cash value to
Hillshire shareholders. On the other hand, as part of the Pinnacle
deal, Pinnacle Foods shareholders will get $18.00 in cash and 0.50
shares of Hillshire Brands common stock for each share. Hillshire
Brands plans to fund the transaction with $2.1 billion of equity
and $4.8 billion of debt. The company expects to maintain its
annual dividend of 70 cents a share but will suspend its share
repurchase program to focus on debt pay-down. This deal would
expand Hillshire Brands' product offering and bolster its presence
across the frozen, refrigerated and dry grocery categories.
Chicago-based Hillshire stated that it will review Pilgrim's
Pride's proposal but added that it still believes in its plan to
buy Pinnacle Foods, a Zacks Rank #2 (Buy) company.
Hillshire Brands holds a Zacks Rank #3 (Hold), while Pilgrim's
Pride holds a Zacks Rank #1 (Strong Buy). Investors can also
consider another meat company
Sanderson Farms Inc.
) with a Zacks Rank #1.
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HILLSHIRE BRAND (HSH): Free Stock Analysis
PINNACLE FOODS (PF): Free Stock Analysis Report
PILGRIMS PRIDE (PPC): Free Stock Analysis
SANDERSON FARMS (SAFM): Free Stock Analysis
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