Tyson Foods heralded "year of enhanced shareholder value" as
the protein giant revealed it had sealed the purchase of Hillshire Brands, to
create a "clear leader" in US prepared foods, with group sales of $40bn.
Tyson Foods and Hillshire Brands, the rump of Sara Lee Corp,
said that their directors had unanimously approved the $8.55bn acquisition,
which is expected to close on September 27.
The takeover offers a "unique opportunity to transform an
important segment of our business", said Donnie Smith, the chief executive at
Tyson, which has been attempting to grow in branded foods, and gain extra margins
above those at its traditional commodity meat businesses.
"I am confident that together Tyson Foods and Hillshire
Brands have the right products and the right people to create years of enhanced
For Hillshire Brands, Sean Connollly, chief executive, said
that a "combination with Tyson Foods
represents a unique opportunity to provide shareholders with significant and
immediate value while also positioning our business for continued success".
"I am confident that we have
found an excellent partner in Tyson."
Hillshire Brands had in May agreed to an acquisition itself,
of Pinnacle Foods, the owner of brands such as Bird's Eye and Aunt Jemima.
That deal smoked out interest in Hillshire Brands from
Pilgrim's Pride, the chicken giant owned by Brazil's JBS, which had long had
its eye on a tie-up.
A bid by Pilgrim's Pride for Hillshire in turn provoked a
rival offer from Tyson Foods, one of JBS's main rivals, opening a bidding war
which culminated in the $63-a-share offer agreed on Tuesday.
Tyson Foods will also pay a $163m break fee to Pinnacle Foods,
which on Monday agreed to walk away from its own tie-up with Hillshire, after
spending $25m on the proposal.
Pinnacle, controlled by private equity giant Blackstone,
said that the payout, on which it expects to pay "minimal cash taxes", would be
used to reduce debt and promote investment in the company.
Tyson Foods has estimated at $300m a year benefits from the
deal through actions such as removing duplicated functions and reaping supply
Nonetheless, the deal has received a mixed response from
investors, who have sent Tyson Foods shares some 6% lower since it unveiled its
first bid, compared with a 4% rise in the average New York-listed share.
Brokers upgrading Tyson Foods shares since the deal include
BMO Capital, which raised its rating on the stock to "outperform" from "market
perform" while keeping a target price of $43.00.
However Credit Suisse, downgraded the shares to "underperform"
from "neutral", cutting the target price from $40 to $35, saying that the shares
"will be dead money at best for the next 12 months as [Tyson] copes with the
hangover of paying such a big price".
BB&T cut its rating on Tyson Food shares to "hold" from "buy",
removing a $44 price target, while Trefis said that "we believe that in the
heat of the bidding war, Tyson Foods has overpriced Hillshire Brands.
"Even if the company is able to realise anticipated cost
synergies from the deal, it could still find it difficult to justify the steep
valuation in the long run."
Tyson Foods shares added 1.3% to $38.35 in early deals on
Wednesday, when Hillshire Brands shares nudged 0.2% higher to a fresh record
high of $62.75 as another small uncertainty to the deal was removed.