Tyson lifts Hillshire bid, forcing Pilgrim's exit

Tyson Foods knocked rival Pilgrim's Pride out of the takeover race for the maker of Jimmy Dean sausages and Sara Lee desserts by hiking its offer by $1.75bn but has to yet to confirmed as the winner of the battle.

Tyson Foods, the top US meat group, said it was lifting by $13 a share to $63 a share its offer for Hillshire Brands, the rump of Sara Lee Corp, saying a deal represented "truly a transformational opportunity".

Donnie Smith, the Tyson Foods chief executive, said that "we are convinced that combining Tyson and Hillshire Brands would make strategic, financial and operational sense".

The offer, equivalent to $8.55bn, provoked a rapid response from rival bidder Pilgrim's Pride - controlled by Brazil's JBS, the world's biggest meat group saying that it was withdrawing from the bid battle.

"As a disciplined acquirer, we determined that it was in the best interests of our shareholders not to increase our proposed price of $55.00 per share in cash," said Bill Lovette, the Pilgrim's chief executive.

Stumbling block?

However, Tyson Foods, although defeating its close rival in the takeover race, has yet to emerge with consent for a deal from Hillshire Brands, which is still tied to its own agreement to purchase Pinnacle Foods, which sells food under brands such as Birds Eye and Aunt Jemima.

Hillshire Brands said that it did "not have the right to terminate the merger agreement with Pinnacle Foods on the basis of the Tyson Foods offer", nor to agree on any takeover before signing off with Pinnacle, which is controlled by private equity group Blackstone.

Hillshire Brands added that it "has not approved the Tyson Foods offer, has not changed its recommendation regarding the Pinnacle merger and is not making any recommendation with respect to the Tyson offer.

"There can be no assurance that any transaction will result from the Tyson Foods offer."

For Tyson Foods, Mr Smith told an investor call: "Hillshire is under contract with Pinnacle and is not permitted to accept our offer unless and until that agreement with pinnacle is terminated.

"And that's really all I can say about the process."

Tyson Foods has said that its offer is open until December 12, the deadline day for completion of a Hillshire-Pinnacle deal.

Deal benefits

Tyson Foods said that it would be able to reap cost synergies of $300m from a takeover of Hillshire Brands the same as Pilgrim's Pride had expected from its own takeover - though squeezing out costs in areas such as purchasing, distribution and general administration.

It also said that its pork processing operations "would benefit from stable and consistent demand for its raw materials for use in Hillshire Brands' branded, value-added products".

The group has long been attempting to expand in packaged foods to capture the extra margins from selling branded, rather than commodity, meat.

Mr Smith said that a deal "would stabilise" Tyson Foods' earnings "by increasing return on sales and de-commoditising our business".

Tyson vs JBS

The deal also represents something of a fightback by Tyson Foods against JBS which, backed by BNDES, Brazil's development bank, has through a series of acquisitions grown from being an abattoir in western Brazil in the early 1950s to overtake the US group as the world's biggest meatpackers.

However, the acquisition spree has come at a cost, landing JBS with heavy debts which required a capital injection from shareholders five years ago to tackle.

The acquisition of Hillshire Brands followed assurances from JBS that it was committed to paying down debt run up by its last acquisition, last year, of Seara, purchased for R$5.85bn ($2.6bn) in from Brazilian rival Marfrig Global Foods.

Pilgrim's Pride said on Monday it had received "fully-committed financing", at a rate of 4.1%, for its Hillshire takeover proposals from a consortium of banks including Barclays, Credit Suisse and Wells Fargo.

Market reaction

In New York, shares in Pilgrim's Pride tumbled 6.1% to $24.67 in lunchtime deals, when shares in Tyson Foods were 4.6% lower at $38.26.

"The price of the transaction is a lot higher than what any of us could've imagined it going to," Credit Suisse analyst Robert Moskow told the Tyson investor call.

Hillshire Brands stock was 5.0% higher at $61.86, a little below the Tyson offer price. Investors typically in bid situations incorporate a discount to allow for the threat of the deal collapsing, and for the time value of money.

In Sao Paulo, JBS shares surged 6.5% to R$7.92.

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