Pilgrim’s Pride Bid for Hillshire Brands Co Puts Pinnacle Foods In Limbo

Pilgrim’s Pride Bid for Hillshire Brands Co Puts Pinnacle Foods In Limbo

The recent announcement of a buyout offer for Hillshire Brands Co (NYSE:HSH) sending shares surging and will likely impact the company’s recent acquisition targets.

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Today poultry producer Pilgrim’s Pride Corporation (NASDAQ:PPC) offered to purchase Hillshire for $45 per share in a $6.4 billion cash offer to acquire wider product diversification in the grocery arena.

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“From a financial basis, we think Pilgrim’s Pride Corporation (NASDAQ:PPC)-Hillshire Brands Co (NYSE:HSH) would bring many more synergies than would Hillshire-Pinnacle Foods, primarily because putting two meat companies together likely would generate sales/marketing efficiencies, back office consolidation, and supply chain benefits,” said Ken Goldman at J.P. Morgan in a report.

Hillshire turns from hunter to hunted

Last week ValueWalk had reported that Hillshire was acquiring Pinnacle Foods Inc (NYSE:PF), marketer of brands such as Birds Eye and Duncan Hines, for $6.6 billion deal that includes outstanding debt.  By contrast Pilgrim’s Pride Corporation (NASDAQ:PPC) is bidding $6.4 billion. The acquisition puts into question Hillshire’s acquisition plans regarding Pinnacle Foods.

“The combination of Hillshire Brands Co (NYSE:HSH) and Pinnacle Foods brings together two highly complementary organizations with strong brands, skilled employees and lean cost structures,” Sean Connolly, president and chief executive officer of Hillshire Brands, was quoted last week in ValueWalk as saying of the deal.  “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.”

Hillshire Brands Co (NYSE:HSH) has been circumspect regarding becoming the target of an acquisition, saying in a prepared statement: “Consistent with its fiduciary duties, and in consultation with its independent financial and legal advisors, Hillshire Brands’ Board will thoroughly review the Pilgrim’s Pride Corporation (NASDAQ:PPC) proposal.” Pilgrims Pride, which currently sells 80% chicken products, however, was more than happy to flap its wings with pride at the bid to diversify into packaged products and better leverage their sunken sales costs.

“We feel confident that Hillshire shareholders will recognize the superior value this proposal represents for them,” Pilgrim’s Pride CEO Bill Lovette said during a conference call on Tuesday morning.

Hillshire grew out of Sara Lee

Chicago-based Hillshire Brands Co (NYSE:HSH), formed in 2012 when Sara Lee split into two publicly 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.

Expect additional bidders, Hillshire hot property

Hillshire Brands Co (NYSE:HSH) had been speculated as a takeover target , and other bidders may be expected to enter the ring.  Other speculation noted that the deal to be acquired by Pilgrim’s Pride offered shareholders more value than did purchasing Pinnacle Foods, potentially leaving this firm at the alter. .

“For Hillshire Brands Co (NYSE:HSH) shareholders, our proposal provides a substantial premium, greater certainty and immediate cash value for their shares,” Lovette said. “We have long respected the Hillshire business and we are confident that Hillshire’s board and shareholders will find our all-cash premium proposal to be superior to the pending acquisition of Pinnacle.”

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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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