story by Kim Souza
The largest deal in meat history — Tyson Foods’s $8.55 billion offer to acquire HIllshire Brands — may soon reach the Hillshire board for approval, according to persons close to the situation. But execs with Pinnacle Foods could delay the mega deal.
Tyson Foods offered to pay $63 per share for Hillshire Brands and cover the $163 million break-up fee to Pinnacle Foods, if Hillshire walked away from its plans to buy Pinnacle Foods — a $4.3 billion deal announced May 12.
Pinnacle Foods said Thursday (June 12) that it is considering its options to hold Hillshire Brands to its agreement or secure more money in exchange for the deal termination.
Hillshire privately notified Pinnacle earlier this week that it doesn't plan to recommend the Pinnacle acquisition to its shareholders.
“Now, any arguments about its rights under its agreement with Hillshire could ultimately be pursued as leverage in a settlement,” according to a Wall Street Journal report.
Market watchers have said the Tyson bid was overvalued. Tyson execs counter by saying that acquiring Hillshire’s retail brand share was an opportunity of a lifetime. The pro forma company would take a major share in the breakfast foods market and rise to No. 2 in the frozen foods categories, behind Nestle, according to Tyson projections.
Hillshire Brands has not formally accepted Tyson’s deal, which was contingent on the break-up with Pinnacle. Analysts said the notification to Pinnacle this week sets the ball in motion for Hillshire to now fully consider Tyson’s generous offer, which represents a 70% premium price for its investors.
Pinnacle claims the merger agreement has a “force the vote” provision which requires Hillshire to hold a shareholder vote on the Pinnacle deal. Only if Hillshire shareholders reject the deal, can Hillshire terminate the agreement.
Hillshire’s language in the June 9 release that acknowledged Tyson’s offer indicated the sausage maker understood that it had no right to entertain Tyson’s offer because of is agreement with Pinnacle Foods. Under the terms of the Pinnacle-Hillshire agreement, there is a clause that would allow both parties to work toward an amicable termination, with Pinnacle receiving the $163 million break up fee from Hillshire, who would then be able to negotiate the acceptance of the Tyson deal.
Analysts believe Hillshire shareholders would approve the Tyson deal as it represents a substantial cash premium over all other offers. Tyson extended its offer deadline to Dec. 12, giving Hillshire time to work through its options.
Shares of Hillshire Brands (NYSE: HSH) closed Thursday at $61.87, down 4 cents. Shares recently set a 52-week high of $62.04 on news of the Tyson offer. Tyson investors have not fared so well. Tyson shares (NYSE: TSN) closed Thursday at $35.17, down 92 cents. Tyson shares have decreased in value more than 13% in the past five trading days.
Tyson Foods CEO Donnie Smith said culturally and operationally the companies are a great fit and the deal will pay off for shareholders over the next five years. That timeline was extended from three years to five years after Tyson raised its offer for Hillshire from $50 to $63 per share.