* Combines Hillshire's sausages, lunch meat with Pinnacle's frozen vegetables, pickles
* Offer values Pinnacle at $36.48/share, roughly a 20 pct premium
* Hillshire shares fall 5 pct (Adds Blackstone's profit on the deal)
By Siddharth Cavale and Lisa Baertlein
May 12 Hillshire Brands Co said on Monday it would buy Pinnacle Foods Inc in a $4.3 billion deal that will combine its lineup of Jimmy Dean sausages and Hillshire lunch meats with Pinnacle's Birds Eye frozen vegetables and Vlasic pickles.
Shares of Hillshire fell 5 percent after the announcement of the cash-and-stock deal, which analysts said dashed some investor hopes that Hillshire would be bought by a larger company.
The deal, Hillshire's third in a year, will make the Chicago-based company the owner of 10 complementary brands that are either No. 1 or No. 2 in their categories, bolstering its presence in the frozen, refrigerated and packaged food aisles of U.S. supermarkets.
Both Hillshire and Pinnacle focus on convenient products that appeal to similar consumers, said Hillshire Chief Executive Officer Sean Connolly, who will lead the post-merger company.
"These brands are almost siblings to one another. Meats go with vegetables, sandwiches go with pickles," Connolly told Reuters in an interview.
The deal also will expand Hillshire's cost base beyond pricy beef and pork and will create co-branding opportunities, he said. For example, Birds Eye's Voila skillet meals contain unbranded meats that could be replaced with Hillshire products.
Hillshire's other products include Aidells sausages and Gallo Salame. Pinnacle also sells Open Pit barbecue sauces, Mrs. Paul's frozen seafood and Wish-Bone salad dressing.
Hillshire, formerly the food business of Sara Lee Corp, is offering $18 in cash and half of one of its shares for each Pinnacle share.
The offer values Pinnacle at $36.48 per share, a premium of about 20 percent to Pinnacle's closing price on Friday.
Hillshire's shares were down 5.1 percent at $35.05 on Monday afternoon on the New York Stock Exchange. Pinnacle shares were up 13.6 percent at $34.59.
Including debt, the deal is valued at $6.6 billion.
Hillshire Brands said it had secured committed financing from Goldman Sachs & Co.
Hillshire expects the deal to add immediately to earnings and generate $140 million in annual cost savings three years after closing. It said it would keep its current annual dividend, but suspend its share buyback program as it works to pay down debt.
Private equity firm Blackstone Group LP, which owns about 51 percent of Pinnacle, has agreed to vote in favor of the deal, the companies said. Blackstone took Pinnacle private for about $2.2 billion in 2007, then took it public again in March 2013.
Blackstone, which invested a total of about $700 million in Pinnacle in 2007 and 2010, stands to make a capital gain in realized and yet-to-be realized profits in excess of $2 billion, according to a person familiar with the financial details.
Hillshire's advisers are Centerview Partners and Goldman Sachs, while Pinnacle's are Bank of America Merrill Lynch and Blackstone Advisory Partners.
Skadden, Arps, Slate, Meagher & Flom LLP is legal adviser to Hillshire, while Simpson Thacher & Bartlett LLP is advising Pinnacle. (Reporting by Siddharth Cavale in Bangalore, Lisa Baertlein in Los Angeles and Greg Roumeliotis in New York; Editing by Saumyadeb Chakrabarty, Matthew Lewis and Lisa Shumaker)