Pilgrim's Pride Corp PPC.O on Tuesday offered to buy Hillshire Brands Co HSH.N 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 22 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 PF.N, known for its Birds Eye frozen vegetables and Wish-Bone salad dressings, in a $4.3 billion deal.
Pilgrim's competing overture, which requires Hillshire to drop its Pinnacle bid, also signaled an aggressive return to dealmaking by Brazilian meatpacking giant JBS SA JBSS3.SA, which owns about 75 percent of Pilgrim's and recently cut its debt.
Growing global demand for meat has fueled large protein mergers, 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.
MEAT MERGER MANIA
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.
Pilgrim's offer of $45 per share represents a premium of about 22 percent to Hillshire's Friday closing.
Pilgrim's also would pay a termination fee of $163 million to Pinnacle and assume Hillshire's long-term debt of about $840 million.
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.
The companies had combined revenue of $12.4 billion in the last 12 months.
(Editing by Saumyadeb Chakrabarty and Andrew Hay)