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Tyson Finally Wins Hillshire, Inks Acquisition Deal

Zacks Equity Research

After a long fought bidding war, Tyson Foods, Inc. (TSN) has finally signed a definitive acquisition deal with packaged meat producer The Hillshire Brands Co. (HSH). Per the deal, Tyson Foods will pay $63 per share in cash for all the outstanding shares of Hillshire, valuing the company at approximately $8.55 billion, including debt.

On the same day, Hillshire’s board accepted the notice of termination of the deal from frozen foods maker Pinnacle Foods, Inc. (PF), which was the prime condition for Tyson's deal to materialize. Tyson stated that it will pay a termination fee of $163 million to Pinnacle Foods on behalf of Hillshire related to the cancellation of the Hillshire-Pinnacle deal.

Chicago-based Hillshire Brands had proposed to buy Pinnacle Foods for about $6.6 billion on May 12, including debt, in order to diversify its portfolio. (Read: Hillshire to Buy Pinnacle Foods for $6.6B). However, two weeks later Tyson and poultry producer Pilgrim’s Pride Corp. (PPC) engaged in a bidding war to acquire Hillshire. It came to an end when Tyson finally clinched the deal with its offer of $63 per share made on Jun 9. However, the deal with Tyson was contingent on the termination of the pending Pinnacle-Hillshire deal.

Later on Jun 16, the board of Hillshire unanimously decided to withdraw its recommendation to acquire Pinnacle, as Hillshire’s board considered Tyson’s $63 per share offer superior to Hillshire’s proposed acquisition of Pinnacle Foods for $6.6 billion.

However, per the agreement with Pinnacle, Hillshire could not terminate the deal on the basis of Tyson’s offer. But Pinnacle had the option of terminating the agreement or force the deal to be voted on by Hillshire shareholders. Hillshire Brands had announced to hold its stockholder meeting by August to decide on the deal. However, Pinnacle terminated the deal on Jun 30. (Read: Pinnacle Terminates Hillshire Deal, Makes Way for Tyson).

Tyson is the largest US meat producer and is a leader in the retail sale of prepared foods. The acquisition of Hillshire’s top meat brands like Jimmy Dean sausages and Ball Park hot dogs will complement Tyson’s portfolio and would make Tyson the industry leader in chicken production. It is expected to increase its margins in other categories such as desserts and lunch meats to name a few. Tyson will benefit from the strength of Hillshire's products in the breakfast category where the former has little presence. The purchase would also improve Tyson’s economy of scale with more customers and shelf space. Hillshire, on the other hand, will receive a substantial premium and immediate cash benefit for its shareholders. Tyson's acquisition of Hillshire is expected to close by Sep 27 this year.

Both Pinnacle Foods and Tyson have a Zacks Rank #3 (Hold); while Hillshire Brands carries a Zacks Rank #2 (Buy).

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