Meat giant Tyson Foods unveiled a $6.8bn bid for Hillshire Brands,
launching an effort to "reposition" as a clear leader" in prepared foods, and trumping
by $400m an offer from rival Pilgrim's Pride.
Arkansas-based Tyson Foods, the biggest US protein group,
offered $50.00 a share in cash for Hillshire Foods, the rump of Sara Lee Corp,
and owner of retail meat brands such as Jimmy Dean and Hillshire Farm.
The bid topped the $45.00 a share offered on Tuesday by
Pilgrim's Pride, the US chicken producer owned by Brazil's JBS, which has
through a series of deals overtaken Tyson Foods as the world's top meatpacker.
The acquisition would "reposition Tyson as a clear leader in
the retail sale of prepared foods", Tyson Foods said, stressing in particular Hillshire's
"strength… in the breakfast category" through, for example, Jimmy Dean
Entry into this market "would allow Tyson to capture
opportunities from shifting consumer trends in this attractive and fast-growing
daypart where Tyson has little presence today".
The deal would raise to 18%, from 9%, the proportion of
Tyson revenues coming from prepared foods, a market the group has been
attempting to expand in to exploit higher margins than from selling commodity
By operating profits, prepared foods would account for 20%
the combined group's result, a reflection of the higher margins that Hillshire
has been able to achieve.
Indeed, Tyson said the acquisition would present the chance
to realise "significant synergies" through merging the two companies' "talented"
sales and marketing teams, with distribution another area offering the
potential for deal benefits.
"Tyson's shareholders will benefit from the considerable new
opportunities that come with this extraordinary strategic fit," said Donnie Smith,
the Tyson chief executive.
For Hillshire, the bid offers shareholders "an immediate and
significant return on their investment", Tyson said, and represents a "significantly
superior alternative to Hillshire's previously announced agreement to acquire
Hillshire three weeks ago unveiled plans to purchase
Pinnacle Foods, the group behind Birds Eye frozen vegetables.
Mr Smith said: "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 the company."
This held for Hillshire "either on a standalone basis or in
combination with any other food processing company", he said.
Both the Tyson Foods and Pilgrim's Pride deals are
conditional on Hillshire ditching its plans to buy Pinnacle Foods, a
cancellation which would trigger a $160m break fee.
Tyson Foods added that there were "no financing conditions"
to its proposal, with Morgan Stanley, potentially alongside JP Morgan, offering
a "fully committed" bridge loan facility.
"We expect to maintain our investment grade credit rating
following the proposed transaction," Mr Smith said, adding that the group was "prepared
to issue equity as a financing mechanism if it is determined to be prudent".
Debt markets reacted with some concern to the Pilgrim's
Pride bid, with JBS bonds for 2020 redemption suffering their biggest fall in
four months on Tuesday, by 0.48 cents to 107.09 cents.
JBS, which ran into turbulence some five years ago thanks to
the extent of its borrowings, had been promising to cut its leverage.
However, concerns were eased somewhat by the use by Pilgrim's
Pride of debt that would be non-recourse to JBS.
Fitch Ratings termed a Pilgrim's Pride takeover of Hillshire
"credit neutral" for JBS, saying that strong cashflows would allow a rapid reduction
of the leverage from a ratio equivalent to 4.1 times earnings before interest,
tax, depreciation and amortisation (ebitda) immediately after a takeover.
Moody's said that a deal would be "short term credit
negative" for JBS, which owns 75% of Pilgrim's Pride.
On the New York stockmarket, shares in Hillshire Brands
stood up 16.4% at $52.175 in lunchtime deals, above the level of the Tyson Foods
offer, implying that investors believe the bidding war has further to run.
Tyson Foods shares were 7.2% higher at $43.69.
Stock in rival bidder Pilgrim's Pride were 1.6% down at $24.985,
while shares in JBS were 3.1% down at R$7.63 in Sao Paulo.
Pinnacle Foods' New York-listed stock was up 1.3% at $31.77,
having dropped 5% on Tuesday when the Pilgrim's Pride offer for Hillshire was