SPRINGDALE -- Tyson Foods Inc. proposed the largest bid in its history Thursday -- $6.8 billion to acquire Chicago-based Hillshire Brands, a meat-packaging company that sells Jimmy Dean and Ball Park products.
If completed, the acquisition would reposition the company as the world leader in the sale of prepared foods.
JBS S.A., parent company to Pilgrim's Pride, now holds the title as the largest seller of prepared foods, taking the spot from Tyson in 2009.
The $6.8 billion offer came two days after Pilgrim's Pride, a Colorado meat processor, made an unsolicited bid to acquire Hillshire Brands and its debt for $6.4 billion.
Analysts believe that it could come down to a bidding war between the two companies.
"We believe Tyson and Pilgrim's both want this asset. It fits well with both of them strategically," said Farha Aslam, managing director of Stephens Inc., the Little Rock-based financial-services firm. "We do anticipate that there will be counteroffers for Hillshire."
If Pilgrim's Pride offers a rival bid, Tyson's Chief Financial Officer Dennis Leatherby 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."
Financial backing in the form of a short-term loan by Morgan Stanley Senior Funding Inc. would provide Tyson the means to purchase the company.
Tyson's $50-per-share, all-cash proposal, compared with Pilgrim's $45, would provide Hillshire shareholders a 35 percent premium, which Tyson President and CEO Donnie Smith said would benefit both companies' shareholders.
Hillshire's stock closed at $52.76, up $7.94, for a 17.73 percent increase on the New York Stock Exchange. The stock has traded between $30.35 and $52.93 in the past year.
"Our proposal provides Hillshire shareholders with an immediate cash premium for their shares that we believe is both greater and more certain than what can be attained in the near term by [Hillshire] either on a stand-alone basis or in combination with any other food-processing company," Smith said. "Tyson's shareholders will benefit from the considerable new opportunities that come with the extraordinary strategic fit."
If the bid is approved, Tyson would hold Ball Park, Hillshire Farm, Jimmy Dean, State Fair, Tyson and Wright Brand prepared-foods brands.
The acquisition is contingent upon regulatory approval by the Federal Trade Commission and the Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, a set of antitrust laws.
"When you look at concentration ratios, I don't think any regulators would suspect this transaction is even close to creating a monopoly," said H.L. Goodwin, poultry economist and professor of agricultural economics and agribusiness at the University of Arkansas at Fayetteville. "It just gives the company a competitive edge over someone else in their industry."
Tyson had not intended to bid on Hillshire before Pilgrim's bid. But an eventual bid was part of Tyson's three-step plan for up to the year 2020 to accelerate the growth of the company.
"A great, strategic food opportunity presented itself, and we think we made a full and fair offer," Smith said.
The No. 1 area of focus for the company is prepared foods, followed by value-added meats and international business, Smith said.
When asked if the acquisition would create new jobs or if there would be a consolidation effort among companies, Gary Mickelson, director of public relations for Tyson, said, "Not at this point."
In a letter to Hillshire President and CEO Sean Connolly, Smith said Tyson's bid is contingent on Hillshire terminating a May 12 merger agreement between it and Pinnacle Foods Inc. for $6.6 billion. Pinnacle Foods brands include Aunt Jemima, Duncan Hines and Birds Eye -- all outside of Tyson's portfolio.
In the Hillshire-Pinnacle agreement, the deal can be terminated if a better proposal is brought forward
Thursday afternoon Hillshire issued a statement verifying that the company would consider Tyson's proposal.
"Consistent with its fiduciary duties, and in consultation with its independent financial and legal advisers, Hillshire Brands' Board will thoroughly review the Tyson Foods proposal," according to Hillshire's statement.
After the unsolicited bid by Tyson, Moody's Investors Service placed a ratings action on the company that could result in a downgrade if the bid is declined.
"The review for downgrade reflects Moody's anticipation of higher leverage that would result from the proposed acquisition and the uncertain outcome of the unsolicited bid, which may not be accepted by Hillshire or could result in a transaction that is materially different from the one proposed," according to the rating-action document.
"If a deal is consummated, Moody's believes that the benefits from higher earnings quality added through the acquisition of Hillshire's retail-focused business could be offset by the burden of higher financial leverage."
During trading Thursday, Tyson's stock closed at $43.25, up $2.50, or 6.13 percent, on the New York Stock Exchange. The stock has traded between $24.48 and $44.24 in the past year.
A Section on 05/30/2014
Print Headline: Tyson bids for Hillshire