- POSTED: 30 May 2014 04:56
US meat processing giant Tyson Foods launched a battle with Brazil's JBS over Hillshire Brands with a US$6.8 billion bid for the maker of popular sausages and hot dogs.
NEW YORK: US meat processing giant Tyson Foods launched a battle with Brazil's JBS on Thursday over Hillshire Brands with a US$6.8 billion bid for the maker of popular sausages and hot dogs.
Tyson, the world's second-largest meat processor after JBS, topped the US$6.4 billion bid for Hillshire that was made Tuesday by JBS's US subsidiary Pilgrim's Pride.
Both were seeking a solid foothold in the US market for branded prepared foods: Hillshire owns popular brands like Ballpark hot dogs, Jimmy Dean and Aidells sausages, and Sara Lee desserts.
"The combination of Tyson and Hillshire would reposition Tyson as a clear leader in the retail sale of prepared foods, with a complementary portfolio of well-recognized brands and private-label products," said Tyson chief executive Donnie Smith.
"We believe that there is a strong strategic, financial and operational rationale for the combination ofTyson and Hillshire."
The Tyson bid included US$6.1 billion in cash for all of the shares of Hillshire, with the rest of the offer's valuation apparently coming from debt assumed in the deal.
Pilgrim's Pride, the leading US chicken processor, offered US$45 a share for Hillshire on Tuesday.
Both bids have interrupted Hillshire's own effort to buy rival Pinnacle Foods for US$6.6 billion, a deal that some Hillshire shareholders have criticized as not particularly strategically beneficial and which would add to the company's debt.
Tyson or Pilgrim's would have to pay a US$163 million termination fee to Pinnacle if either's bid for Hillshire is accepted.
Hillshire said that it would "thoroughly review" the Tyson offer but made no comment on the Pinnacle deal.
Reacting to Pilgrim's offer on Tuesday, it used the same language, but added that it continues "to strongly believe in the strategic merits and value creation potential provided by the proposed transaction with Pinnacle Foods."
Tyson's offer is about a 35 per cent premium to Hillshire's share price of US$36.95 on May 9, the day before Hillshire announced its deal to buy Pinnacle.
Hillshire's shares got a big boost on Tuesday from the Pilgrim's bid, and surged another 17.7 per cent to US$52.76 on Thursday as some investors anticipated a bidding war.
Meanwhile Pinnacle shares ended at US$31.68, after having topped US$35 in the wake of Hillshire's offer.
Tyson shares gained 6.1 per cent to US$43.25, while Pilgrim's Pride fell 1.1 per cent to US$25.09.
Both Tyson and Pilgrim's Pride said their offers are better deals for Hillshire shareholders than its own move for Pinnacle.
Hillshire, with annual sales of US$3.9 billion, is a relative minnow compared with both companies. Tyson's annual sales for the most recent fiscal year were US$34.4 billion, while Pilgrim's Pride's were US$8.4 billion. JBS, which owns 75.5 per cent of Pilgrim's, reported global sales last year of about US$40 billion.
Tyson said combining with Hillshire would help reposition it in the downstream sector of prepared foods, where margins are higher than for processed meat.
It argued that its proposal "provides Hillshire shareholders with an immediate cash premium for their shares" that is better, and more certain, than they would gain from a Hillshire-Pinnacle combination.
Analysts at Trefis said branded packaged meat like Hillshire's Jimmy Dean sausages earns profit margins of 11-16 per cent, compared with the 7-10 per cent range for meat processing.
Meat processing is also "fraught with inherent problems such as volatile feed costs (mostly corn and soybeans) and negligible pricing power," Trefis said in a client note.