Tyson Foods Inc (TSN.N) won the bidding war for Hillshire Brands Co HSH.N with an all-cash offer that values the maker of Jimmy Dean sausages at $8.55 billion and would be the biggest deal yet for the global meat business.
Tyson, the largest U.S. meat processor, on Monday announced an agreement to buy Hillshire for $63 per share. That topped last week's $55 bid from Pilgrim's Pride Corp (PPC.O), which is majority owned by Brazilian meatpacking giant JBS SA (JBSS3.SA).
The high-stakes battle for Hillshire, which also sells Ball Park hot dogs, Jimmy Dean frozen breakfast sandwiches and Aidells artisan sausages, underscores how urgently large commodity meat companies want to gobble up popular, and more profitable, brands.
"We want to buy this business for what it can become, not just for what it is now. Great brands like Hillshire, Jimmy Dean and Ball Park just don't come available very often," Tyson Chief Executive Donnie Smith said on a conference call with reporters.
"We determined that it was in the best interests of our shareholders not to increase our proposed price," Pilgrim's said in a statement on Monday. Pilgrim's $45 per share offer on May 27 sparked the bidding war.
Investors cheered the final deal, sending shares in Hillshire up 5.1 percent to $61.92 in afternoon trading.
Analysts had warned that a bidding war could result in the winner overpaying for Hillshire. They also said such a merger could give the winner a competitive advantage that would be hard for the loser to match.
To that end, shares in Tyson and Pilgrim's were down 4.9 percent and 6.1 percent, respectively.
Athlos Research principal Jonathan Feeney said Tyson overpaid "in a conventional sense." But, he said, Tyson can afford it because of what Hillshire brings to the table with its popular grocery brands.
With the Hillshire deal coming to a close, Feeney and others say Kraft Foods Group Inc's (KRFT.O) Oscar Mayer lunch meat and hot dog brand could be the next target.
Tyson's offer for Hillshire expires Dec. 12. It is contingent on Hillshire dropping plans to buy Birds Eye frozen vegetable seller Pinnacle Foods Inc (PF.N) for $6.6 billion deal, including debt.
Hillshire on Monday said it had not approved the Tyson offer and had not changed its recommendation that shareholders vote for the Pinnacle deal.
Some analysts say China's Shuanghui International Holdings Ltd set the current food fight in motion last May when the company, now called WH Group Ltd, bought Smithfield Foods Inc for $4.7 billion, excluding debt.
Tyson's Hillshire offer, excluding debt, comes to $7.7 billion.
Tyson plans to fund the deal with existing cash and a fully committed bridge facility from Morgan Stanley Senior Funding Inc and JP Morgan Securities LLC.
Four antitrust experts told Reuters the deal likely would win approval from regulators since the companies tend to sell different products.
"If there is a category on the branded side that raises an (antitrust) issue, there's always an opportunity to sell off the brand," said Jonathan Lewis, an antitrust expert with the law firm Baker Hostetler.