Food giant Tyson Foods is acquiring AdvancePierre Foods, a supplier of meat, sandwiches and snacks, in a deal valued at $4.2 billion, the companies said Tuesday.
Springdale-based Tyson's offer for outstanding shares of Cincinnati-based AdvancePierre is $40.25 per share in cash. The total deal includes $3.2 billion in equity and the assumption of about $1 billion in assumed debt from AdvancePierre. Tyson expects the acquisition to result in $200 million in cost-saving efficiencies within three years.
The offer is a 31.8 percent premium to AdvancePierre's closing price on April 5, the most recent "unaffected trading day," according to the companies. It's a nearly 10 percent premium over AdvancePierre's market close Monday.
"This transaction is about growth," Tyson CEO Tom Hayes said on a conference call with analysts Tuesday morning.
The acquisition is Tyson's largest deal since it absorbed Hillshire Brands and its many well-known products, such as Jimmy Dean and Ball Park, in 2014 for $7.7 billion. Since then, Tyson has been positioning itself as a meat-based food producer with a stable of strong brands across the entire segment. Hayes, a former Hillshire executive, took over Tyson's top job at the first of the year.
Hayes said AdvancePierre's strength in the convenience-store market and in the perimeter segment in grocery stores, where consumers tend to make quick purchases of snacks and other food, was a particularly good fit for Tyson.
AdvancePierre sells its products -- valued-added meats and sandwich items -- to retailers, schools, convenience stores and food-service operations. Products include ready-to-eat lunch and dinner sandwiches, entrees and snacks. The company's largest brand is Barber Foods, which offers stuffed chicken breasts in grocery and club stores.
Founded in Cincinnati in 1946, AdvancePierre makes about 600 million sandwiches annually. About 37 percent of the company's production is made up of sandwich components. Ready-to-eat sandwiches account for about 30 percent of its business, and snacks and other entrees make up 33 percent.
The company went public in July and reported net income of $136.3 million, or $1.90 per share on revenue of $1.6 billion for its fiscal 2016.
Tyson shares closed at $65.13, down less than 1 percent in trading Tuesday on the New York Stock Exchange. Shares have traded as low as $55.72 and as high as $77.05 over the past year. Shares of AdvancePierre closed at $40.48, up $3.87 or nearly 10 percent in Tuesday trading. AdvancePierre shares have traded as low as $22.99 and as high as $40.54 over the past year.
Ken Shea, a senior analyst of food and beverages at Bloomberg Intelligence, said the acquisition fits well with Tyson Foods' stated objectives of expansion and diversification inside the meat business. He said the buy meshes well with Tyson's prepared-foods segment. He said Tyson had gained a great deal of credibility with its acquisition and integration of Hillshire Brands, and he saw no reason why the purchase of AdvancePierre wouldn't be just as successful.
The move was approved by the boards of directors of both companies. Oaktree Capital Management, which controls about 42 percent of AdvancePierre shares through affiliated funds, agreed to take part in the tender offer, according to the companies.
The deal is being funded by bridge financing from Morgan Stanley Senior Funding Inc., the companies said in a release. The merger is subject to some conditions, as well as regulatory approvals, and is expected to close in Tyson's third quarter of fiscal 2017.
Bob Williams, senior vice president and managing director of Simmons First Investment Group in Little Rock, said the deal appeared to be well thought out and should help Tyson meet its goals of rapid but profitable expansion.
"It makes perfect sense for Tyson," Williams said. "They are doing what they said they'd do.
Late Monday, Tyson said it's considering the sale of three of its nonmeat subsidiaries to keep its portfolio focus sharp. Sara Lee Frozen Bakery business, dips, sauces and side-dish brand Kettle, and waffle brand Van's could all be up for sale.
Bloomberg's Shea said the move wasn't a big surprise considering Tyson's stated focus on meat brands, and he expects Tyson to get a good price if the businesses are sold.
Tyson also said Tuesday it was taking a step toward its touted sustainability goals -- committing to a raft of initiatives to build a better work environment for its employees at production centers around the country. More than 95,000 of its 114,000 employees nationwide work in the company's chicken, pork, beef and prepared food production plants.
The plans include a goal of zero workplace injuries or illnesses with a target benchmark of 15 percent annual reduction in worker injuries or illness. According to statistics provided by Tyson, in fiscal 2015 the company had a rated of 5.37 days per 100 employees where employees missed work, had restricted workplace duties or transferred from their regular work assignment due to a workplace injury or sickness. That's down from 7.01 days per 100 employees in fiscal 2009.
Tyson also wants to see zero worker turnover at plants by working toward a 10 percent annual improvement in worker retention. According to Tyson's fiscal 2015 sustainability report, the company has a retention rate of 72 percent for all employees.
The company said it will expand workplace programs that teach life skills and encourage employees to participate in safety programs, and it plans on hiring more trainers for its plants.
"This is about continuous improvement," Hector Gonzalez, Tyson's vice president of human resources operations, said in response to emailed questions. "Our focus on a healthier workplace is part of our overall approach to sustainability, which is about continuous improvement in all areas of our business and solutions that last."
Earlier this year, Hayes said the company is developing a holistic approach to its business dealings. He often uses the word "sustainability" as part of that approach, generally in the context of responsible farming practices and animal health, transparency, better employee relations and an improved working environment.
Tyson also said it's kicking off a pilot plan at two poultry plants that will look at the benefits of increasing base wages from $14 to $15 per hour and reducing the time it takes workers to move into higher pay brackets.
Two organizations that can be critical of Tyson Foods, the United Food and Commercial Workers International Union, which represents up to 70,000 workers in the United States, and human-rights group Oxfam America, both praised the company's new initiatives.
"Tyson Foods' commitment to worker safety and workers' rights should not just be applauded -- it should serve as a model for the rest of the industry," union President Marc Perrone said in a statement.
In a separate statement, Minor Sinclair, director for the U.S. domestic program at Oxfam, said Tyson's new initiative distinguishes itself dramatically from its industry competitors.
"Tyson's commitment to accountability and transparency will be key to significantly improving conditions for poultry workers," Sinclair said. "We call on Pilgrim's Pride, Perdue and Sanderson Farms to take similar steps to safeguard workers well-being and respond to consumers' call for greater transparency."
A Section on 04/26/2017