Pilgrim's Pride unveiled a $6.39bn, unsolicited, bid for
Hillshire Brands in an attempt to create a "leading branded" meat group, and
fulfil a long-held desire to acquire the sausages-to-desserts group, the rump
of Sara Lee Corporation.
Pilgrim's Pride - one of the top US chicken producers, bought
from bankruptcy by Brazil's JBS four years ago said it had offered $45.00 a
share in cash for Hillshire Brands, the owner of labels such as Jimmy Dean,
Wing Dings and State Fair.
The deal, which Pilgrim's Pride said would create a "branded
protein leader", with combined sales of $12.4bn, follows a meeting between the
two groups in February in Chicago, where Hillshire is based.
"As you are well aware, it has long been our desire to
acquire the company," Pilgrim's Pride chief executive and JBS chief executive
Wesley Batista said in a joint letter to Sean Connolly, their counterpart at
However, the offer, to which Hillshire has yet to make a response,
would require the Illinois-based group ditching its own takeover, of packaged
foods group Pinnacle Foods, which was floated last year in New York by private
equity firm Blackstone Group.
Pilgrim's Pride said that its $6.39bn offer - which includes
a $163m break fee for the Pinnacle Foods deal, besides net debt of $553m
represented a "substantially superior alternative" to Hillshire's own
"For Hillshire shareholders, our proposal provides a
substantial premium, greater certainty and immediate cash value for their
shares," Mr Lovette said.
The offer values Hillshire at 12.5 its trailing earnings
before interest, tax, depreciation and amortisation (ebitda), on Pilgrim's
Pride calculations, and represents a 22% premium to the level the shares closed
at on Friday.
"We are coming forward now because the opportunity for your
shareholders to obtain the compelling value represented by our proposal will no
longer exist if the proposed acquisition of Pinnacle is consummated," he added.
'Value to shareholders'
JBS said that the proposed acquisition of Hillshire formed
from the rump of Sara Lee Corp after the spin-off of coffee and tea operations
in 2012 - was aligned with the Sao Paulo-based group's aim "to expand its
presence" in the branded meats sector.
"This proposed acquisition increases the presence of JBS
into an expanded margin category, thus bringing value to its shareholders."
JBS, which also runs its own beef and pork operations in the
US, besides owning 68% of Pilgrim's Pride, has a strategy, like many rival such
as Hormel Foods and Tyson, of backing branded meats, which offer higher margins
than commodity product.
The group has supported its growth largely through
takeovers, including the R$5.85bn ($2.6bn) purchase last year from Brazilian rival
Marfrig Global Foods of the Seara food processing assets.
Indeed, JBS's growth from an abattoir in western Brazil in
the early 1950s has been fuelled by deals, a strategy which forced the group to
turn to shareholders for extra capital in 2010 as the global financial crisis
forced it onto the back foot.
Pilgrim's Pride - which was itself forced in bankruptcy in
2008 by the impact of rising feed prices at a time when its debts remained
swollen by the $1.1bn purchase of Atlanta-based Gold Kist in 2007 acknowledged
that its borrowings would rise to the equivalent of 4.2 times ebitda.
That is well above the group's goal of pinning net debt
below 2.5 times ebitda.
However, this was "well below the levels" that Hillshire
itself had prepared for on buying Pinnacle Foods.
And Pilgrim's Pride said that its gearing would fall to 3.5
times ebitda as of the end of next year.
Mr Batista two weeks ago said that JBS was "analysing all
the possibilities that we can do to be better structured in terms of our tax
structure" given the diminished debts at Pilgrim's Pride.
"Pilgrim's is generating a lot of cash and we are going to
be debt free
very soon, probably by the end of the second quarter," he told
In New York, Hillshire Brands shares soared to an all-time
high of $45.07 before easing to stand at $44.96 after half an hour's trading,
up 21% on the day.
Pilgrim's Pride shares were 3.9% higher at $26.09.
In Sao Paulo, JBS shares eased 0.1% to R$7.88.