(Corrects to fix typo in paragraph 8 and corrects Pilgrim's
credit rating in paragraph 12)
By Lisa Baertlein
June 4 Bids for sausage maker Hillshire Brands
Co don't have much room to rise above current levels,
analysts tell Reuters.
Pilgrim's Pride Corp sweetened its per-share bid on
Tuesday to $55 from $45, beating Tyson Foods Inc's $50
Some analysts are betting the final deal will be around $60
per share, a view backed by investors, who have sent Hillshire's
stock above $59.
"These are rich, rich offers," said Vicki Bryan, senior high
yield analyst at corporate bond research service Gimme Credit.
Bryan thinks bids for the seller of Jimmy Dean sausages and Ball
Park hot dogs are nearing their peak.
Food deal valuations are hitting new highs, fueled by low
interest rates and plenty of available capital.
Year-to-date, median multiples for food and beverage, as
well as agriculture and livestock, deals are nearly 11 times the
previous 12 months' earnings before interest, taxes,
depreciation and amortization (EBITDA). That is the highest
level since the full year of 2005, according to Thomson Reuters
The revised $55 bid from Pilgrim's implies a valuation of
14.5 times EBITDA for a total value of $7.7 billion, Bernstein
Research analyst Alexia Howard said in a note.
Other recently announced food deals with high multiples
include flavorings group Symrise AG's $1.8 billion
offer for food ingredient maker Diana Group at 14 times EBITDA,
and cereal maker Post Holdings Inc's $2.5 billion deal
to buy egg producer Michael Foods for around 10 times EBITDA,
according to research from investment bank Harris Williams & Co.
"Tyson can certainly get to a $60 per share bid,"
Bernstein's Howard said. "We do not see it going much higher
than that, however, given the likely negative shareholder
reaction to a much richer valuation for Hillshire."
Tyson declined to comment.
Both Pilgrim's and Tyson would require Hillshire to
terminate its bid for Birds Eye frozen vegetable seller Pinnacle
Foods Inc. Some analysts and investors view a Pinnacle
deal, with a total value of $6.6 billion, as inferior.
Pilgrim's, the second-largest U.S. chicken processor, is
controlled by Brazilian meat packer JBS SA and can
take on extra debt without threatening its existing credit
quality, which is below investment grade, Gimme Credit's Bryan
This isn't the first time JBS has taken a run at Hillshire's
assets. Reuters reported in 2010 that JBS was trying to buy
Hillshire predecessor Sara Lee, but talks broke down over price.
Tyson has said it could use shares as currency to protect
its credit rating. And some analysts said Tyson's borrowing
costs are low enough to leave room for a successful $60-per
But others say that would be a step too far.
"If Tyson participates in another round of the bidding war,
we think there is a strong likelihood that the firm would
overpay," Morningstar analyst Liang Feng said in a note.
(Reporting by Lisa Baertlein; Additional reporting by Olivia
Oran in New York; Editing by Andre Grenon and Dan Grebler)