Tyson Makes $6.2 Billion Hillshire Offer to Trump Pilgrim’s

May 29, 2014 5:22 pm ET

May 29 (Bloomberg) -- Tyson Foods Inc., the second-largest U.S. pork producer, made an unsolicited $6.2 billion offer to buy Hillshire Brands Co., trumping a competing bid from Pilgrim’s Pride Corp. for the maker of Jimmy Dean sausages.

Tyson is offering $50 a share, the Springdale, Arkansas- based company said today in a statement. That’s 35 percent more than Hillshire’s last closing stock price before it received Pilgrim’s $45-a-share unsolicited proposal on May 27. Hillshire traded as high as $52.93 today, indicating investors expect a higher offer.

Tyson, led by Chief Executive Officer Donnie Smith, is looking to expand further into branded, value-added packaged foods that have wider margins and more stable earnings compared with its traditional commodity meat business. It bid for food processor and distributor Michael Foods Group Inc., controlled by Goldman Sachs Group Inc.’s private-equity arm, people familiar with the matter said in February. It subsequently lost out to a bid from Post Holdings Inc.

“This is a game-changer to how we look at prepared foods,” Smith said today on a conference call.

Hillshire said in a statement that it will review the Tyson offer. Buying the company would give Tyson meat brands that also include Ball Park hot dogs and Hillshire Farm, as well as Sara Lee cakes. Tyson said it will realize “significant” cost savings from combining both companies’ sales, marketing, distribution and supply-chain operations. The proposed takeover is subject to Hillshire terminating a $5.2 billion agreement to buy Pinnacle Foods Inc., owner of the Birds Eye frozen foods brand.

Biggest Deal

Buying Chicago-based Hillshire would be Tyson’s biggest deal, surpassing its 2001 acquisition of beef producer IBP Inc., according to data compiled by Bloomberg.

Rival bidder Pilgrim’s is the majority-owned U.S. chicken unit of Brazil’s JBS SA, the world’s largest meat producer. In a May 27 statement, Pilgrim’s said it met with Hillshire in February and that its offer depends on the company dropping its bid for Pinnacle. The Pinnacle deal has been criticized by activist investor and Hillshire shareholder Eminence Capital LLC as too expensive.

Following today’s bid from Tyson, Pilgrim’s is reviewing its options, according to a person familiar with the matter. It’s too early to say whether Pilgrim’s will raise its offer, said the person, who asked not to be identified because the deliberations are private.

‘Good Fit’

The Pilgrim’s bid two days ago forced Tyson to act, it said today in a letter to Hillshire.

“We would have preferred to make this proposal to you privately, but in light of current circumstances we believe that it is in the best interests of your and our shareholders to have current and accurate information about our proposal,” Tyson’s Smith said in the letter, a copy of which was included in today’s statement.

“Hillshire is a very good fit with Tyson Foods, and it is also a good fit with Pilgrim’s Pride and JBS,” Farha Aslam, a New York-based analyst for Stephens Inc., said by phone today. “There’s a strong possibility that Pilgrim’s Pride will review its bid, and move it up.”

No one at Pilgrim’s could immediately be reached for comment on the Tyson offer. Hillshire said in a May 27 statement that it would review the Pilgrim’s bid. JBS officials didn’t immediately respond to requests for comment.

Deal Financing

Tyson said today the total value of its offer is $6.8 billion, or 13.4 times Hillshire’s trailing 12-month earnings before interest, taxes, depreciation and amortization. The takeover would add to Tyson’s earnings per share in the first full year after the deal’s completion, according to the company.

Tyson has bridge financing arranged by Morgan Stanley and said JPMorgan Chase & Co. is expected to help fund the deal as well. The two investment banks are Tyson’s financial advisers on the bid and Davis Polk & Wardwell LLP is its legal counsel.

Shares of Hillshire surged 18 percent to $52.76 at the close in New York. Tyson rose 6.1 percent to $43.25 and Pilgrim’s dropped 1.1 percent to $25.09. JBS dropped 4.2 percent to 7.54 reais in Sao Paulo.

Maple Leaf Foods Inc., a producer of prepared meats, jumped 10 percent in Toronto, the biggest gain in more than 13 years.

Hillshire’s $278.4 million of 4.1 percent notes due 2020 reached the highest level in six months, climbing 2.88 cents to 104 cents on the dollar for a yield of 3.39 percent at 10:56 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Canceled Sale

The cost to protect Hillshire’s bonds against losses for five years fell 27.5 basis points to 63 basis points, the lowest level since 2010, according to data provider CMA, which is owned by McGraw Hill Financial Inc. and compiles prices quoted by dealers in the privately negotiated market.

JBS bonds due in 2020 gained 0.3 cent to 107.49 cents on dollar in New York, the biggest one-day advance since May 15.

JBS USA Holdings Inc., a unit of JBS SA, said today in filing that it temporarily withdrew a sale of $750 million of senior notes while it seeks a new leading coordinator. Morgan Stanley, one of Tyson’s advisers, was a bookrunner on the sale, people familiar with the matter said yesterday.

JBS removed Morgan Stanley as the lead underwriter of its planned bond sale after learning the bank helped Tyson make a rival offer for Hillshire, a person familiar with the matter said today.

--With assistance from Gerson Freitas Jr. in São Paulo and Caroline Chen and Julia Leite in New York.