Hillshire bidding war heats up as Pilgrim bests Tyson's bid

Jeff Macke

Shares of Hillshire Brands (HSH) are up a meaty 8% today after poultry producer Pilgrim's Corp. (PPC) raised its bid to buy them up to $7.7 billion or $55 per share. Pilgrim’s new offer trumps rival Tyson Food’s (TSN) $50 offer.

More importantly Pilgrim firing back at Tyson leaves no doubt there is a bidding war in the meat aisle of your grocery store. In the attached video Yahoo’s Mike Santoli says Hillshire’s fate as a takeover victim is certain. At this point it’s just a matter of price.

“They want higher margin, branded meat products,” says Santoli. It’s about supermarket real estate. Not only does the dominant player in the aisle get delivery efficiencies through product volume but the winning company will also be able to drive a better bargain with the supermarket chains.

For shareholders the game now gets a bit more complicated. When the bids were originally announced both the acquiring companies and the targets moved higher in tandem. Now that there’s a full-blown food fight Hllshire’s stock is blowing through the $55 offer, approaching $60 while Tyson and Pilgrim are weaker on the day. Ultimately there’s only so much profit margin to be had in produce. As past M&A binges have shown, the “loser” in bidding wars usually turns out to be the company that wins the auction.

At current prices Hillshire is trading nearly 32 times earnings. For a company with little growth and 5.7% profit margins that’s a pretty full valuation.

The latest word is that Hillshire will come to the table with its suitors in the near future. Look for some sort of deal near current prices. There simply isn’t a lot of meat left on the bone at this point in the party.

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