Hillshire Brands Acquiring Pinnacle Foods, Continuing Buying Spree

Hillshire Brands Acquiring Pinnacle Foods, Continuing Buying Spree

Pinnacle Foods Inc (NYSE:PF), marketer of brands such as Birds Eye and Duncan Hines, will be acquired by Hillshire Brands Co (NYSE:HSH) in a $6.6 billion deal that includes outstanding debt.

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The deal involved the approval of private equity firm Blackstone Group LP, which owns 51 percent of Pinnacle Foods Inc (NYSE:PF).  Blackstone took Pinnacle private in 2007 for $2.2 billion.  The deal represents nearly a 300% increase in value from the point Blackstone took the firm private.  It brought the company public in 2013 with a stock market launch.

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Cost savings equate to profits

Hillshire Brands Co (NYSE:HSH) says the deal will add $140 million to the bottom line in cost savings over three years.

“The combination of Hillshire Brands and Pinnacle Foods brings together two highly complementary organizations with strong brands, skilled employees and lean cost structures,” said Sean Connolly, president and chief executive officer of Hillshire Brands, said in a press release. “The new Hillshire Brands will have a strengthened position in frozen foods, new opportunities in the center store for our brands and in refrigerated for Pinnacle Foods’ brands.”

Chicago-based Hillshire Brands Co (NYSE:HSH), formed in 2012 when Sara Lee split into two publically traded companies, includes brands such as Ball Park, Jimmy Dean, and State Fair brands of deli meats and other packaged-meat products, including hot dogs and sausages, Sara Lee’s line of frozen desserts, including cheesecake, as well as the artisanal brands Aidells and Gallo. The company, which recently moved from the far northern suburbs of Chicago to a high-profile re-developed former warehouse turned open office space in the West Loop, has been on an acquisition rampage as of late.  Last week, for instance, the company announced a deal to buy Van’s natural foods.

Stock gyrations

Under the agreement each share of Pinnacle Foods Inc (NYSE:PF) common stock will be traded for $18 in cash and ½ a share of Hillshire Brands common stock.

Pinnacle Foods Inc (NYSE:PF) shares were trading up nearly 15%, trading near $38 in early morning trade while Hillshire Brands Co (NYSE:HSH) was down close to 5%.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com
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