Tyson said to win Hillshire bidding war

Monday, June 9, 2014

Tyson Foods Inc. agreed to buy Hillshire Brands Co. after outbidding Pilgrim’s Pride Corp. to gain control of the maker of Jimmy Dean sausages and Ball Park hot dogs, two people with knowledge of the matter said Sunday.

The decision was made over the weekend, said the people, who asked not to be identified because the agreement hasn’t been announced. Terms of the agreement weren’t immediately available.

Pilgrim’s Pride initially bid $6.4 billion for Hillshire Brands on May 27. Springdale-based Tyson countered with a $6.8 billion offer, the largest bid in company history, two days later. On Tuesday, Pilgrim’s Pride increased its bid to $7.7 billion.

JBS S.A., the parent company of Pilgrim’s Pride, is the largest seller of prepared meats, taking the spot from Tyson in 2009 after numerous acquisitions. Tyson would regain the title with the purchase of Hillshire Brands.

Gary Mickelson and Dan Fogleman, spokesmen for Springdale-based Tyson, didn’t respond to emails seeking comment. Mike Cummins, a spokesman for Hillshire, didn’t return an email seeking comment. Rosemary Raysor, a spokesman for Greeley, Colo.-based Pilgrim’s Pride, also couldn’t be reached.

The contest for Hillshire illustrates traditional meatpackers’ desire to gain consumer brands that offer fatter profit margins than those available from slaughtering livestock. 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.

Hillshire, known as Sara Lee Corp. before splitting off its tea-and-coffee segment in June 2012, has focused since the spinoff on improving lunch-meat quality, creating new hot-dog varieties and attracting more customers with lower-calorie breakfast sandwiches. Combining Tyson and Hillshire would create a company with $39.4 billion of annual sales and $1.2 billion of net income, according to data compiled by Bloomberg based on trailing 12-month figures.

Shares of Hillshire rose 0.4 percent to $58.92 on Friday, giving it a market value of about $7.2 billion. It has traded above $55 a share since Tuesday.

Both Pilgrim’s Pride and Tyson had insisted when agreeing to enter the talks that Hillshire would drop its earlier agreement to buy Pinnacle Foods Inc., the producer of brands including Vlasic pickles, for $6.6 billion including debt. Under terms of that deal, Hillshire would owe a $163 million breakup fee.

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

“It makes a lot of financial sense to buy Hillshire now that they have low debt levels, they have very strong cash flow,” Bryan Agbabian, San Francisco-based sector head for agricultural equities for Allianz Global Investors, said by phone recently.

Hillshire has net debt of $553 million, according to data compiled by Bloomberg. It had free cash flow of $174 million in the 12 months through March, the data show.