Tyson Foods completed its acquisition of Hillshire Brands on Thursday, transforming Tyson into the world's largest seller of prepared meats and affirming its commitment to growth via branded, value-added foods.
"As of today, the two companies are officially one," said Donnie Smith, chief executive of Tyson, in a recorded interview. "I believe it's an excellent fit, and I'm proud to welcome Hillshire's great products, brands and talent to Tyson Foods."
The $8.55 billion acquisition wasn't cheap or straightforward, and Tyson emerged a different company after the 93-day process.
The company sold its Latin American divisions to JBS S.A. -- what was the world's largest meat company and its chief rival in the bidding war for Hillshire -- and is now billions in debt. The company will lay off about 950 people by mid-2015 and close plants in Iowa, New Mexico and New York.
And Tyson said Wednesday that it will spin off Heinold Hog Markets, a hog purchasing division that represents less than 1 percent of the company's revenue, in an agreement with the Antitrust Division of the Justice Department.
But for Tyson, the purchase isn't about what the company lost, but what it gained.
The company is more focused on the domestic market, will have a larger transportation and cold storage network, and is left with more efficient production facilities. The acquisition will save Tyson about $500 million over three years, Smith said.
But more importantly, consumers who buy Jimmy Dean, Ball Park, Sara Lee, Hillshire Farm or State Fair products will be buying from Tyson.
That matters for the company's bottom line. JBS and Tyson were willing to go to lengths to acquire Hillshire because prepared foods and name brands draw higher profit margins than commodity products.
Hillshire has some of the top brands in the industry. In terms of market share, Jimmy Dean leads in breakfast sausages and frozen protein breakfasts, Ball Park is No. 1 in hot dogs, and Hillshire Farms is No. 2 in branded lunch meat.
Prepared foods accounted for about 9 percent of Tyson's sales and 5 percent of its operating income, according to an investor report.
The addition of Hillshire Brands to that segment will double the prepared-food segment's contribution to revenue and quadruple the segment's contribution to operating income. Prepared foods will account for 18 percent of Tyson's revenue and 20 percent of its operating income.
"It represents a significant shift toward higher margin, branded foods," Smith said.
In addition to new brands, Tyson received new leadership from Hillshire.
Andy Callahan, former president of Hillshire's retail business, will manage all retail consumer brands at Tyson.
Sally Grimes, former chief innovation officer and president of Hillshire's Gourmet Food Group, will lead Tyson's innovation, sales and global brand strategy teams.
"These are very talented people, who I believe have the skills, the experience to help us continue growing this great company of ours," Smith said.
Tyson also created an integration management office to assist in getting the companies together.
"It involves teams of people from all across Tyson and Hillshire with some support from outside consultants," Smith said. "Together, these teams are building plans to make sure the new Tyson Foods has a clear road map to the future."
Ken Shea, senior food and beverage analyst for Bloomberg, said in order for the acquisition to succeed, Tyson must fully integrate Hillshire's branded foods expertise.
"It's not a layup. Tyson's a big, sprawling organization. It's a really good processor and a good raiser of chicks," he said. "It takes a different set of skills to sell branded foods."
But he also said Tyson is doing exactly what investors have asked.
"It will be worth it if they execute well," he said. "This is a different animal now, no pun intended."
Business on 08/29/2014