Hillshire Brands in center of meat bidding war as Tyson makes $6.2 billion offer

Hillshire Brands takeover offers by the two major meat processors are being driven by the desirability of brand-name processed products like Jimmy Dean breakfast sandwiches. 

Paul Sakuma/AP/File
This combo made with file photos shows a package of frozen Tyson Chicken Nuggets and a package of Hillshire Farm sausage, in Palo Alto, Calif. Two days after poultry producer Pilgrim’s Pride made a $5.58 billion dollar bid for the maker of Ball Park hot dogs and Jimmy Dean sausages, Tyson Foods Co. on Thursday, May 29, 2014 sweetened the pot with a $6.2 billion offer. The deal sent Hillshire shares up 14 percent in premarket trading.

Hillshire Brands is at the center of a barnyard brawl.

Tyson Foods, the largest U.S. meat processor, on Thursday made a $6.2 billion offer for the maker Jimmy Dean sausages and Ball Park hot dogs, topping a bid made two days earlier by rival poultry producer Pilgrim's Pride. Based in Greeley, Colorado, Pilgrim's Pride is owned by Brazilian meat giant JBS.

The takeover bids for Hillshire by the two major meat processors are being driven by the desirability of brand-name processed products like Jimmy Dean breakfast sandwiches. The convenience foods are more profitable than fresh meat, such as chicken breasts, where there isn't as much wiggle room to pad prices.

Selling more types of products also would give the companies a buffer from volatile price swings of fresh meat. When beef prices rise and shoppers turn to other meats, the companies can sell more chicken or bacon, for example.

While both Tyson and Pilgrim's sell some prepared products like frozen fried chicken pieces, their main business has been as suppliers of fresh meat for supermarkets and restaurant chains.

Both offers are contingent on Hillshire abandoning its plan to acquire Pinnacle Foods, which makes Birds Eye frozen vegetables and Wish-Bone salad dressings. Hillshire had been trying to diversify its own portfolio by moving into other areas of the supermarket with the $4.23 billion acquisition.

But some investors questioned whether combining with Pinnacle made sense, given the sharp differences in product categories and the outdated image of some Pinnacle brands, such as Hungry Man frozen dinners.

Hillshire said earlier it strongly believes in its deal with Pinnacle Foods but would review Pilgrim's offer. In its latest statement on Thursday, the Chicago-based company said it would review Tyson's offer as well and made no mention of its Pinnacle deal.

Pilgrim's Pride said it is considering its options and will "update the markets in due course," making no mention of whether it planned to raise its offer. Pinnacle didn't respond to request for comment.

Earlier this week, J.P. Morgan analyst Ken Goldman had noted other potential suitors for Hillshire could emerge, including Tyson and Cargill. Goldman suspended his ratings for Hillshire and Tyson on Thursday because of J.P. Morgan's role in the deal on behalf of Tyson.

A representative for Cargill declined to comment.

Tyson and other meat producers are facing changing consumer tastes and volatile meat prices. In addition to helping profit margins, moving more heavily into branded products is seen as helping to diversify portfolios and creating more stability in financial results. The offer by Tyson could also be a defensive move to prevent rival JBS from becoming an even bigger player.

Tyson's offer of $50 per share. That's $5 per share higher then Pilgrim's Pride's bid. Hillshire has about 124 million shares outstanding, according to SEC filings. Tyson values the deal at $6.8 billion, including debt.

Tyson's offer is a 35 percent premium to Hillshire's closing price May 9, the day before Hillshire announced its bid for Pinnacle.

Shares of The Hillshire Brands Co. jumped $7.69, or 17 percent, to $52.50, above the latest offer price.

Meanwhile, Tyson Foods Inc. shares rose nearly 8 percent to $43.85. Shares of Pilgrim's Pride Corp. fell 1 percent to $25.01 and shares of Pinnacle Foods Inc. rose 1 percent to $31.80.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.