Packaged meat producer,
The Hillshire Brands Company
) announced on Monday that it has agreed to buy branded foods
Pinnacle Foods Inc.
) in a cash and stock deal valued at approximately $6.6 billion,
including debt. Following the announcement, Pinnacle Foods' share
price rose 13.2%, while Hillshire's shares fell 3.2%.
Per the deal, Pinnacle Foods shareholders will get $18.00 in
cash and 0.50 shares of Hillshire Brands common stock for each
share. The deal values Pinnacle Foods at $36.02 a share,
representing an implied premium of 18% of Pinnacle's closing price
on May 9. Once the deal closes, Pinnacle Foods shareholders will
own around 33% of the combined company.
The deal will expand Hillshire Brands' product offering and
bolster its presence across the frozen, refrigerated and dry
Both the companies have complementary businesses. The deal will
add Pinnacle Foods' brands like Birds Eye frozen vegetables,
Wish-Bone salad dressing, Vlasic pickles, Duncan Hines cake mixes
and Log Cabin syrups to Hillshire Brand' meat dominated brand
portfolio comprising Hillshire Farm lunch meats Jimmy Dean sausages
and Ball Park hot dogs. "Meats go with vegetables, sandwiches go
with pickles," Sean Connolly, CEO of Hillshire, told analysts on
Monday validating the deal.
In a similar deal, another branded food and meat producer
Hormel Foods Corp.
) Skippy peanut butter business in Jan 2013 to reduce its
dependency on meat.
The combined company's enhanced scale, reach and capabilities
will result in significant cost synergies, thereby accelerating
margins. The deal will be immediately accretive to earnings and is
expected to deliver $140 million in cost synergies by the third
year through supply chain savings and lower overhead costs.
Moreover, according to management the deal will result in "input
cost diversification" - offset rising prices of meat and pork as
the dependency on meat products goes down. Costs of meat and
beef have risen sharply in the last one year.
The deal has been approved by the board of directors of both the
companies. Moreover, private equity group, Blackstone - Pinnacle
Foods' largest shareholder owing 51% of the company - has agreed to
vote in favor of the transaction. The post-merger company will be
run by present CEO Connolly. The deal, subject to shareholder and
regulatory approvals, is expected to close in September this
Hillshire Brands plans to fund the transaction with $2.1 billion
of equity and by raising $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.
While Hillshire Brands carries a Zacks Rank #3 (Hold), Pinnacle
Foods has a Zacks Rank #2 (Buy).
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HORMEL FOODS CP (HRL): Free Stock Analysis
HILLSHIRE BRAND (HSH): Free Stock Analysis
PINNACLE FOODS (PF): Free Stock Analysis Report
UNILEVER PLC (UL): Free Stock Analysis Report
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