Lenders braced for food fight

Fri May 30, 2014 12:46pm EDT

(This story originally appeared on IFRe.com, a Thomson Reuters publication)

By Michelle Sierra, Joan Magee and Davide Scigliuzzo

NEW YORK, May 30 (TRLPC/IFR) - Wall Street firms are joining the sizzling four-party food fight involving Hillshire Brands, Pilgrim's Pride, Pinnacle Foods and Tyson Foods. Morgan Stanley, JP Morgan and Goldman Sachs are separately ready to serve the necessary financing to the winner.

Morgan Stanley is providing the committed financing backing meat processor Tyson Foods' unsolicited bid of US$6.8bn for food producer Hillshire Brands. Tyson also said it expected JP Morgan to join the facility in the "near future".

Meanwhile, Pilgrim's Pride, controlled by Brazilian meatpacker JBS, is lining up roughly US$6bn in debt to finance a hostile all-cash bid, valued at US$6.4bn, for Hillshire, and JBS's relationship banks are pitching financing options to the firm.

Separately, Goldman Sachs is providing US$5.3bn in loans to back the US$6.6bn combination of Hillshire and branded food producer Pinnacle Foods that was announced two weeks ago. The facility consists of a US$500m revolving credit facility and a US$4.8bn senior secured Term Loan B, according to a regulatory filing.

HUNGRY, HUNGRY BANKERS

The four-way tug-of-war may stem from the lack of good quality assets still available in the food and beverage market, bankers said. The accessibility to cheap financing is further enhancing M&A activity in the sector.

Based on completed deals, the M&A volume figure for the beverage, food and tobacco processing industry is US$4.62bn, according to Thomson Reuters data.

Whichever bid ultimately prevails, banks are expecting chunky financing fees and plenty of ancillary business.

"It should be good for banks if Hillshire goes to an investment grade strategic bidder," a senior banker said.

The tussle is already affecting existing lending relationships. JBS said on Thursday it had postponed a US$750m high-yield bond deal, due to be led by bookrunners Morgan Stanley and Wells Fargo.

Although the bond was slated to refinance some 2016 bond maturities and other shorter-term debt, a person with knowledge of the situation suggested there was a conflict of interest as Morgan Stanley was providing financing for the Tyson bid for Hillshire.

Bankers said the announcement of the committed financing from Tyson adds a level of certainty that may make the Tyson bid stronger. However, it is yet to be seen who will prevail.

"It depends," another banker said. "It will ultimately be up to the company."

Earlier this month, the food and beverage industry welcomed Hillshire's offer to buy Pinnacle for US$4.3bn. The cash-and-stock deal would establish Hillshire as the owner of 10 packaged food brands that are either market leaders or second in their categories, the companies said.

The two new bidders, however, turned up this week at the buyers' table, derailing Hillshire's plans. On Thursday, Tyson raised the stakes by bidding about US$6.8bn for Hillshire. Two days earlier, Pilgrim's Pride also made an unsolicited bid for Hillshire of nearly US$5.7bn plus debt, totalling about US$6.4bn. (Reporting by Michelle Sierra, Joan Magee and Davide Scigliuzzo; Editing by Jonathan Methven and Tessa Walsh)