| LOS ANGELES/CHICAGO
LOS ANGELES/CHICAGO May 29 The bidding war for
Hillshire Brands Co could herald further deals as meat
companies seek to round out their assets from farm to table in a
food frenzy that accelerated after China's acquisition of
Smithfield Foods a year ago.
The deals also are being fueled by Americans' increasing
appetite for protein: Profit margins in chicken production have
become fat even as tight supplies in the beef and pork markets
have driven up prices, raising costs for producers and prompting
some consumers and retailers to reach for poultry products.
Global mergers and acquisition activity in the meat products
sector has totaled $20.3 billion so far this year, a 98 percent
increase from the same period in 2013, according to Thomson
Tyson Foods Inc on Thursday offered to buy Hillshire
Brands Co for $6.3 billion excluding debt, upstaging Pilgrim's
Pride Corp's bid for the sausage company earlier in the
week, in a deal that would broaden Tyson's branded supermarket
"We've had a very strong protein cycle. It generated a lot
of cash and healed up balance sheets, which gives protein
companies significant fire power" when they're shopping for
deals, Stephens analyst Farha Aslam said.
"The profits in poultry have been very good, and both
Tyson's and Pilgrim's Pride operating performances have been
very strong," said Brian Weddington, a senior credit officer at
Moody's Investors Services.
Some analysts say China's Shuanghui International Holdings
Ltd set the food fight in motion last May when the company, now
called WH Group Ltd, bought Smithfield Foods Inc in a deal
valued at $4.7 billion, excluding debt.
Even at that time, bidders were circling. The Wall Street
Journal reported that Thailand's Charoen Pokphand Foods PCL
was among a crowd of suitors eager to gobble up
Smithfield when Shuanghui made its move.
The Smithfield-Shuanghui deal underscored how international
investors are expanding their interests in food commodities to
feed a global middle class, as well as planting a flag in
American grocery and meat aisles. Tyson is based in Springdale,
Arkansas, and Pilgrim's Pride is controlled by a unit of
Brazil-based JBS SA.
"It opened up the door to what we're seeing now," said Vicki
Bryan, a senior high yield analyst with Gimme Credit LLC.
"People suddenly realized that there were so many buyers - and
sellers [in the protein sector]."
Tyson Foods on Thursday told Reuters the bid for Hillshire
was unconnected to the Smithfield-Shuanghui deal. But Tyson
spokesman Gary Mickelson said the company "mapped out our vision
for the next few years" in internal discussions that occurred
about a year ago.
Tyson executives on a conference call with reporters
Thursday said the strategy sessions identified three important
target growth areas: prepared foods, value-added poultry and
Tyson's offer for Hillshire took direct aim at the packaged
food portion of that plan. The company's $50-per-share offer
topped the $45 per share offer that Pilgrim's submitted on
Branded meat products have higher and more stable margins
than unbranded commodity meats, Bernstein Research analyst
Alexia Howard said in a client note.
Hillshire, whose products include Jimmy Dean sausage and
bacon and Ball Park hot dogs, could be a "once in a lifetime"
opportunity for companies like Tyson or Pilgrim's, Howard said.
Hormel Foods Corp, Sanderson Farms Inc and
Toronto's Maple Leaf Foods Inc could participate in
future deals, analysts said.
(Reporting by P.J. Huffstutter; Editing by Lisa Shumaker)