[May 28, 2014]By Lisa Baertlein and
Devika Krishna Kumar
(Reuters) - Pilgrim's Pride
Corp on Tuesday offered to buy Hillshire Brands Co <HSH.N>
in an all-cash deal valued at $6.4 billion, as the
world's second-largest chicken processor seeks to expand
its protein footprint with Hillshire's sausages and
lunch meats.
Shares in Hillshire soared almost 23 percent on word of the bid,
which landed two weeks after the maker of Hillshire lunch meats and
Jimmy Dean Sausages offered to buy Pinnacle Foods Inc <PF.N>, known
for its Birds Eye frozen vegetables, in a $4.3 billion deal.
Pilgrim's competing overture, which requires Hillshire to drop its
Pinnacle bid, also signaled an aggressive return to deal making by
Brazilian meatpacking giant JBS SA <JBSS3.SA>, which owns about 75
percent of Pilgrim's and recently cut its debt.
A buying spree launched in 2005 transformed JBS into the world's
biggest beef producer with more than 14 major acquisitions in six
years, including U.S. rivals Swift, Smithfield Beef and Pilgrim's
Pride.
Growing global appetite for meat also has fueled other big protein
deals, including last year's roughly $5 billion acquisition of pork
giant Smithfield Foods by China's WH Group Ltd, previously known as
Shuanghui International Holdings.
Investors were cool on a Hillshire-Pinnacle marriage and sent shares
down roughly 6 percent in intraday trading when the proposal came on
May 12.
Under that deal, Hillshire would suspend share buybacks, take on
debt of $2.3 billion and expand into areas that are out of synch
with U.S. consumers' appetite for fresher food.
J.P. Morgan analyst Ken Goldman in a client note called Pilgrim's
offer both strategically and financially superior to the Pinnacle
deal.
"That's more like it," Goldman said. "Joining two protein companies
makes a lot more sense than marrying a meat company with one that
has a focus on frozen vegetables."
Pilgrim's Chief Executive William Lovette said in a letter to
Hillshire that "our proposal will no longer exist if the proposed
acquisition of Pinnacle is consummated."
Hillshire said in a statement that it continued to "strongly believe
in the strategic merits and value creation potential" of the
Pinnacle merger, but that it would thoroughly review the Pilgrim's
Pride proposal.
Pilgrim's offer of $45 per share represents a premium of about 22
percent to Hillshire's closing share price on Friday.
Pilgrim's also would pay a termination fee of $163 million to
Pinnacle and assume Hillshire's long-term debt of about $840
million.
Pilgrim's, which sells fresh chicken under brands such as Pilgrim's
and Country Pride, said it expects the Hillshire deal to close in
the third quarter and to be immediately accretive to earnings per
share. It expects to fund for the deal with existing cash and third
party financing.
U.S. antitrust regulators would determine if the Pilgrim's-Hillshire
deal means that American lunches and dinners could become more
expensive because there are too few competitors to prevent large
firms from unfairly raising prices. Sometimes firms sell assets to
win deal approval. One antitrust expert urged regulators to take a
hard line.
"The evidence is quite clear that these deals lead to less for the
farmer and higher food prices," said David Balto, a veteran of the
Federal Trade Commission now in private practice.
(Additional reporting by Brad Haynes in Sao Paulo and Diane Bartz in
Washington; Editing by Saumyadeb Chakrabarty and Andrew Hay)
