Hillshire Brands announced Monday that it had taken a step away from its planned acquisition of Pinnacle Foods and toward accepting a $8.55 billion acquisitions offer from Tyson Foods.
Hillshire's board of directors unanimously agreed to withdraw its recommendation for the pending Pinnacle Foods acquisition in light of Tyson's $63 per share offer.
Tyson's offer is contingent on Hillshire scuttling its Pinnacle acquisition.
The board's recommendation is the first of several moves that Hillshire needs to make to abort that acquisition. Hillshire must decide that the Tyson deal is a "superior offer" under the terms of its agreement with Pinnacle, exit its acquisition of Pinnacle and then accept Tyson's offer by Dec. 12.
Pinnacle now has several options. The company could agree to end the deal and accept a $163 million breakup fee. Or the company could refuse to terminate the agreement. That would force Hillshire to hold a shareholder vote, which could delay the Tyson acquisition. Tyson agreed it would pay the breakup fee, up to $163 million, in a document filed Wednesday. Exceeding that amount would require Tyson's consent.
"We hope Pinnacle Foods will promptly accept the termination fee and not delay the ability of Hillshire Brands' shareholders to benefit from Tyson Foods' superior offer," said Donnie Smith, Tyson CEO, in a statement.
Pinnacle did not immediately return a request for comment.
Hillshire's board provided written notice to Pinnacle Foods on June 9 that it intended to change its recommendation, according to a press release.
"Upon receipt of that notification, under the terms of the merger agreement with Pinnacle Foods, Pinnacle Foods could propose changes to the merger agreement such that the Tyson Foods offer would no longer constitute a Superior Proposal," according to a Hillshire Brands press release. "Pinnacle Foods made no such proposal."
Tyson entered into a binding agreement to acquire Hillshire on June 8 after concluding a bidding war with Pilgrim's Pride and its parent company, JBS S.A. Pilgrim's Pride's final offer was $55 per share.
Tyson was prepared to pay a premium for Hillshire because its branded meats, which include Jimmy Dean sausages and Ball Park Franks, are leaders in sales and command higher profit margins than commodity products, according to industry analysts.
The addition of Hillshire to Tyson's prepared foods segment would double the prepared-food segment's contribution to Tyson's overall revenue and quadruple the segment's contribution to the company's operating income. Prepared foods would then account for 18 percent of Tyson's revenue and 20 percent of its operating income.
Some analysts have speculated that Tyson paid too much. Standard & Poor's Ratings Services placed Tyson, which has a BBB credit rating, on a credit watch with negative implications.
Tyson stock continued a downward slide Monday, falling about 0.8 percent. The stock has fallen from $43.40 June 2 to $35.15 Monday.
Business on 06/17/2014