(Adds antitrust comment, financing details)
By Lisa Baertlein and Devika Krishna Kumar
May 27 Pilgrim's Pride Corp on Tuesday
offered to buy Hillshire Brands Co in an all-cash deal
valued at $6.4 billion, as the world's second-largest chicken
processor seeks to expand its protein footprint with Hillshire's
sausages and lunch meats.
Shares in Hillshire soared almost 23 percent on word of the
bid, which landed two weeks after the maker of Hillshire lunch
meats and Jimmy Dean Sausages offered to buy Pinnacle Foods Inc
, known for its Birds Eye frozen vegetables, in a $4.3
Pilgrim's competing overture, which requires Hillshire to
drop its Pinnacle bid, also signaled an aggressive return to
deal making by Brazilian meatpacking giant JBS SA,
which owns about 75 percent of Pilgrim's and recently cut its
A buying spree launched in 2005 transformed JBS into the
world's biggest beef producer with more than 14 major
acquisitions in six years, including U.S. rivals Swift,
Smithfield Beef and Pilgrim's Pride.
Growing global appetite for meat also has fueled other big
protein deals, including last year's roughly $5 billion
acquisition of pork giant Smithfield Foods by China's WH Group
Ltd, previously known as Shuanghui International Holdings.
Investors were cool on a Hillshire-Pinnacle marriage and
sent shares down roughly 6 percent in intraday trading when the
proposal came on May 12.
Under that deal, Hillshire would suspend share buybacks,
take on debt of $2.3 billion and expand into areas that are out
of synch with U.S. consumers' appetite for fresher food.
J.P. Morgan analyst Ken Goldman in a client note called
Pilgrim's offer both strategically and financially superior to
the Pinnacle deal.
"That's more like it," Goldman said. "Joining two protein
companies makes a lot more sense than marrying a meat company
with one that has a focus on frozen vegetables."
Pilgrim's Chief Executive William Lovette said in a letter
to Hillshire that "our proposal will no longer exist if the
proposed acquisition of Pinnacle is consummated."
Hillshire said in a statement that it continued to "strongly
believe in the strategic merits and value creation potential" of
the Pinnacle merger, but that it would thoroughly review the
Pilgrim's Pride proposal.
Pilgrim's offer of $45 per share represents a premium of
about 22 percent to Hillshire's closing share price on Friday.
Pilgrim's also would pay a termination fee of $163 million
to Pinnacle and assume Hillshire's long-term debt of about $840
Pilgrim's, which sells fresh chicken under brands such as
Pilgrim's and Country Pride, said it expects the Hillshire deal
to close in the third quarter and to be immediately accretive to
earnings per share. It expects to fund for the deal with
existing cash and third party financing.
U.S. antitrust regulators would determine if the
Pilgrim's-Hillshire deal means that American lunches and dinners
could become more expensive because there are too few
competitors to prevent large firms from unfairly raising prices.
Sometimes firms sell assets to win deal approval.
One antitrust expert urged regulators to take a hard line.
"The evidence is quite clear that these deals lead to less
for the farmer and higher food prices," said David Balto, a
veteran of the Federal Trade Commission now in private practice.
(Additional reporting by Brad Haynes in Sao Paulo and Diane
Bartz in Washington; Editing by Saumyadeb Chakrabarty and Andrew