By Dana Mattioli, Liz Hoffman and Jacob Bunge
Tyson Foods Inc. emerged as the winner in a battle to acquire
Hillshire Brands Co., topping by almost a billion dollars a bid by
rival Pilgrim's Pride Corp. for the maker of Jimmy Dean
sausages.
Tyson, the largest U.S. meat processor by sales, offered $63 a
share in cash, a bid that valued Hillshire at about $7.7 billion.
Pilgrim's Pride, a unit of Brazilian meatpacking giant JBS SA,
withdrew its bid of $55 a share.
Buying Hillshire would accelerate Tyson's push into prepared
foods and create a company with leading market positions in
chicken, breakfast meats, hot dogs and other categories, Chief
Executive Donnie Smith said Monday.
"Brands like Hillshire and Jimmy Dean and Ball Park [hot dogs],
they don't become available very often," Mr. Smith told analysts on
a conference call to discuss Tyson's improved bid.
The two-week battle for Hillshire came to a head this weekend
with final bids for the company due Sunday afternoon, people
familiar with the matter said.
Pilgrim's didn't raise its offer, worth $55 a share. The way the
auction was arranged, the winner would have to beat the other
bidder by at least $2.50 a share, the people said, meaning Tyson
could have won the auction with a bid of $57.50 a share.
Tyson's Mr. Smith told analysts the $63 offer was justified
because it could cut about $300 million in annual costs by
absorbing Hillshire and has the potential to increase Hillshire's
sales in schools and other segments. He said Tyson examined the
companies' respective performance from 2009 to 2013 and expects to
cut about $100 million in costs in the first year following the
acquisition.
A deal would cap a swift yet dramatic battle for Hillshire,
which in early May struck its own $4.3 billion deal to buy Pinnacle
Foods Inc. Just two weeks after Hillshire announced its deal with
the maker of Vlasic pickles and Duncan Hines cake mix, Pilgrim's
Pride swooped in May 27 with a $45-a-share offer for Hillshire.
Tyson two days later bested Pilgrim's bid with a $50-a-share bid
that Pilgrim's Pride last week topped with a $55-a-share offer,
valuing the company at $6.8 billion.
Before the first Pilgrim's Pride bid, Hillshire shares were
trading around $37.
Hillshire can't complete a deal with Springdale, Ark.-based
Tyson until it terminates its planned acquisition of Pinnacle,
which could happen in coming days, people familiar with the matter
said.
In a statement Monday, Chicago-based Hillshire said its board
hasn't yet approved the deal with Tyson and hasn't changed its
recommendation regarding the Pinnacle merger. Hillshire must pay
Pinnacle a $163 million breakup fee if it fails to complete that
transaction.
Tyson's new offer represents a roughly 70% premium to the price
of Hillshire before the bidding began.
Some analysts on Monday questioned Tyson's Mr. Smith about the
size of its bid for Hillshire on the company's conference call. "It
seems like right now you're paying a pretty hefty price for this
asset," said Ashkay Jagdale, an analyst with KeyBanc Capital
Markets Inc.
"This deal is about taking a great asset and growing it, not
simply eliminating costs," Mr. Smith said. "We're purchasing these
assets not just for their value today, but for their potential over
time."
He said Tyson is committed to maintaining an investment-grade
credit rating and could issue equity to help complete the deal.
Pilgrim's set off the bidding war late last month by making an
unsolicited offer for the company.
"As a disciplined acquirer, we determined that it was in the
best interests of our shareholders not to increase our proposed
price of $55.00 per share in cash," Pilgrim's Chief Executive Bill
Lovette said, adding the company will look for other acquisition
strategies.
Winning Hillshire would vault Tyson ahead in the company's
long-running effort to build a business in branded meat
products.
Such packaged meats generally carry higher profit margins than
the meat Tyson sells to restaurants and food-service operations,
which accounts for a big portion of the company's sales.
Hillshire's Jimmy Dean brand dominates refrigerated breakfast
sausage sales with nearly one-third of the market, according to
data from market research firm IRI, and its Ball Park brand leads
hot dog sales.
The deal, expected to rank as the meat industry's biggest ever,
would also mark a major victory for Tyson over JBS. The São
Paulo-based company has emerged as one of Tyson's main global
rivals over the past decade, striking a series of deals to broaden
the company beyond its roots as a Brazilian beef processor to what
the company claims to be the world's largest meat company, with
operations in North and South America as well as Australia.
The deal for Hillshire would rank as the most transformative
move of Mr. Smith's 4 1/2 -year tenure running Tyson. The company's
stock price has more than tripled during that time, far outpacing
gains in the Dow Jones Industrial Average and the S&P 500 stock
index. Tyson's chicken business has benefited as consumers have
shifted their spending on meats toward poultry and away from beef
and pork as supplies of those proteins have tightened due to
drought and disease.
Tyson's deal for Hillshire would also be a big gamble that the
company can make the purchase pay off at a time when growth in
consumers' food spending remains soft and big retailers like
Wal-Mart Stores Inc. and Kroger Co. are exerting greater power over
pricing.
Write to Dana Mattioli at dana.mattioli@wsj.com, Liz Hoffman at
liz.hoffman@wsj.com and Jacob Bunge at jacob.bunge@wsj.com
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