The food fight between Tyson Foods Inc. and Pilgrim's Pride over meat-packaging company Hillshire Brands escalated Tuesday with Pilgrim's Pride upping its bid.
Pilgrim's Pride countered Tyson's $6.8 billion proposal to acquire Hillshire Brands with a $7.7 billion offer.
Pilgrim's Pride initially bid $6.4 billion for Hillshire Brands on May 27. Tyson countered with its offer two days later.
JBS S.A., the parent company of Pilgrim's Pride, now is the largest seller of prepared meats, taking the spot from Tyson in 2009 after numerous acquisitions. If Tyson wins the battle, it will regain the title.
Ken Shea, an analyst for Bloomberg Industries, told Bloomberg News that balance sheet strength could determine who wins the battle for Hillshire Foods.
"Tyson said its corporate credit ranking is important to it, and this self-imposed floor on how deep it will go in the debt means Tyson doesn't want to jeopardize investment-grade rating by going after Hillshire," Shea said. "JBS' BB rating is already below investment grade, and they don't seem to bother about taking on more debt."
But KeyBanc Capital Markets analyst Akshay Jagdale said Tyson has the stronger position.
"Tyson is likely to emerge as the winner of the bidding war, given the relative strength of its balance sheet," Jagdale said.
On Thursday, Tyson's Chief Financial Officer Dennis Leatherby said the company is prepared to counter.
"Financing is committed, and we have the ability, if necessary," Leatherby said. "We really don't want to speculate on our tactics, but we are prepared to issue [a counteroffer]. We have a lot of flexibility in what we could do."
Acquiring Hillshire Brands, which includes Hillshire Farm, Jimmy Dean and Ball Park, would increase the winning company's presence in the branded meat business -- a higher margin sector than either company has traditionally operated in.
"This is a very attractive asset," said analyst Will Sawyer of Rabobank of California, an agriculture lending company. "Hillshire is a business that both bidders have been looking at for years. It's not new to them. It's a business they've looked at for a while because the collection of brands Hillshire offers isn't available in another place. In one fell swoop you would be able to develop or expand your entire branded meats business."
Hillshire Brands announced it would conduct separate discussions with Pilgrim's Pride and Tyson Foods, but offers from both companies are contingent on Hillshire Brands terminating a $6.6 billion agreement to merge with Pinnacle Foods, which produces brands such as Vlasic and Aunt Jemima.
"Hillshire Brands does not have the right to terminate the Pinnacle Foods merger agreement on the basis of either of these proposals or enter into an alternative acquisition agreement with either of these parties prior to termination," the company said in a news release. "There can be no assurance that any transaction will result from these proposals."
Still, the agreement between Hillshire Brands and Pinnacle Foods states that in the case of an unsolicited superior bid, the Hillshire board could recommend that investors vote against the deal.
If that were to happen, Pinnacle would be paid a $163 million breakup fee, according to the agreement.
Spokesmen from Tyson Foods and Hillshire Brands declined comment. Calls to Pilgrim's Pride and Pinnacle Foods were not immediately returned.
After Tyson made its bid on Thursday, Hillshire Brands stock closed at $52.76 -- higher than Tyson's $50 a share offering.
During trading Tuesday, Hillshire Brands closed at $58.65, up $5.08, or 9.48 percent. That's $3.65 higher than Pilgrim's Pride's bid.
Tyson Foods closed at $42.08, down $1.32, or 3.04 percent. Pilgrim's Pride closed at $25.34, down 58 cents, or 2.24 percent.
Information for this article was contributed by Chris Bahn of the Arkansas Democrat-Gazette and Sruthi Ramakrishnan and Devika Krishna Kumar of Reuters.
A Section on 06/04/2014