Tyson Foods and Hillshire Brands on Wednesday (July 2) confirmed they have entered into a definitive agreement under which Tyson will acquire all outstanding shares of Hillshire for $63 per share. The all-cash transaction is valued at approximately $8.55 billion, including Hillshire Brands' outstanding net debt. The deal is expected to be completed by Sept. 27.
Hillshire investors will received a tender offer within the next 10 days
As The City Wire has previously reported, Tyson Foods will make on behalf of Hillshire Brands a payment of the $163 million termination fee associated with the termination of Hillshire Brands' planned merger with Pinnacle Foods. The board of directors of Hillshire Brands has accepted the notice of termination received from Pinnacle Foods and the previously announced transaction has been terminated.
"By investing in Hillshire Brands and its collection of leading brands, we have a unique opportunity to transform an important segment of our business, and position Tyson Foods to meet American consumers' growing demand for protein at breakfast and throughout the day,” said Donnie Smith, president and CEO of Tyson Foods. “We operate in a competitive and complex marketplace that demands bold steps to remain an industry leader. I am confident that together Tyson Foods and Hillshire Brands have the right products and the right people to create years of enhanced shareholder value and ensure more choices for our customers and consumers.”
The pro forma company will allow Tyson Foods to add such names as Jimmy Dean, Ball Park, State Fair and Hillshire Farms to Tyson’s blended mix of name and private label brands.
Smith had previously noted that Tyson was attracted to Hillshire in part because of the strength the merger would bring in the growing breakfast category, where the Springdale meat giant has been trying to capture market share with its own DayStarts products.
The combined companies will leap over ConAgra and take the No. 2 market share ($3.3 billion) in the frozen value-added category, according to the meat companies. Tyson now has the No. 3 spot with $2.4 billion, and Hillshire ranks eighth at $1.3 billion.
The prepared foods segment is now 9% of Tyson Foods’ $35.4 billion in annual sales. If the deal happens, the combined companies would post annual revenue of around $39.4 billion, with 18% of that coming from prepared food sales.
Sean Connolly, president and CEO of Hillshire Brands, said, “After thoughtful consideration, our board of directors concluded that a combination with Tyson Foods represents a unique opportunity to provide shareholders with significant and immediate value while also positioning our business for continued success … I am confident that we have found an excellent partner in Tyson. We firmly believe that our combined global platform will be extremely well positioned to capitalize on the substantial growth opportunities in this market in the years ahead.”
Smith has said the two cultures are a great fit and Stephens Inc. analyst Farha Aslam agrees. She said growth among U.S. food companies is hard to achieve because Americans are spending about all they are able on food. She said the food industry is seeing several consolidations because interest rates are low and food companies generate lots of cash.
“Hillshire is a strategic fit for Tyson Foods, the largest acquisition in Tyson’s history and it will take some time for them to digest it all.” Aslam said.
Other analysts believe Tyson overpaid for Hillshire given the final $63 bid came at about a 70% premium to Hillshire’s trading value prior to interest from outside suitors Tyson Foods and Pilgrim’s Pride.
“We believe Tyson stock will be dead money at best for the next 12 months as it copes with the hangover of paying such a big price including an issuance perhaps of $1.6 billion of equity,” noted Robert Moskow, an analyst with Credit Suisse.
Moskow was one of two Wall Street analysts to downgrade Tyson Foods as a result of the deal.
“At the price of $63 per share, we believe Tyson destroyed $2 billion in value. We believe fair value for Hillshire was $47 per share including the $1.3 billion value of synergies,” Moskow said.
Tyson shares reacted favorably with today's announcement closing at $38.96, up $1.09. Tyson shares are down from $44.24 prior to the pursuit of Hillshire Brands.