Pilgrim's Pride Plans a Higher Bid to Win Hillshire - Analyst Blog

The meat brawl is turning out to be aggressive, as chicken processor Pilgrim's Pride Corp. ( PPC ) plans to raise its bid to acquire packaged meat producer The Hillshire Brands Company ( HSH ), as per media reports. Pilgrim's Pride is planning to raise the acquisition offer to $55 per share, topping meat processor Tyson Foods, Inc. 's ( TSN ) $50 per share offer. The current all-cash acquisition proposal from Pilgrim's Pride values the company at $6.7 billion.

On May 29, Tyson Foods offered $50 per share in cash to buy Hillshire Brands, valuing the company at approximately $6.8 billion. This was a counter bid in response to Pilgrim's Pride's offer of $45 per share in cash for all of the outstanding shares of Hillshire and amounted to $6.4 billion.

Hillshire has two companies in the cards trying to win over its top meat brands like Jimmy Dean sausages and Ball Park hot dogs. However, the competing offers have complicated matters for Hillshire Brands as both require it to abandon its own plans to buy Pinnacle Foods Inc. ( PF ) as announced on May 12.

Tyson is the largest U.S. meat processor by sales and Pilgrim's Pride is the world's second-largest chicken producer after Tyson. Both these companies are looking for opportunities to expand their fresh meat business. However, both are vulnerable to weather that has strained their beef, pork and poultry supplies lately. Moreover, an unrelenting drought in California and a second outbreak of a deadly pig virus led to soaring pig prices. Amid these hardships, the acquisition of Hillshire would definitely give an edge to the successful bidder, helping it to meet the growing demand for meat.

Both the deals are attractive and seem to be better alternatives to Hillshire's pending acquisition of Pinnacle. These proposals provide a substantial premium and immediate cash benefit to Hillshire shareholders. Chicago-based Hillshire stated that it will review both Tyson's and Pilgrim's proposals but added that it still has confidence in its plan to buy Pinnacle Foods.

If Hillshire accepts the Pilgrim's Pride deal, it will likely create a strong meat company with complementary brands and a consistent earnings stream. 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 for meat products.

On the other hand, if the second offer is accepted, Tyson will benefit from the strength of Hillshire's products in the breakfast category where the former has little presence. Tyson will realize substantial benefits from full integration of the protein value chain, as stable and consistent demand for protein products will enable Tyson to utilize its resources better. Tyson expects the proposed transaction to be accretive to earnings in the first full year after completion.

Pilgrim's Pride sports a Zacks Rank #1 (Strong Buy), while both Tyson and Hillshire Brands hold a Zacks Rank #3 (Hold).

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TYSON FOODS A (TSN): Free Stock Analysis Report

HILLSHIRE BRAND (HSH): Free Stock Analysis Report

PINNACLE FOODS (PF): Free Stock Analysis Report

PILGRIMS PRIDE (PPC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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