Tyson Foods Inc (TSN.N) has offered to buy Hillshire Brands Co HSH.N for $6.3 billion, upstaging Pilgrim's Pride Corp (PPC.O)'s offer for the sausage company earlier in the week, in a deal that would broaden Tyson's supermarket food offerings.
Investors lauded Thursday's news, sending shares of Hillshire, known for its Jimmy Dean and Hillshire sausages, nearly 18 percent higher to $52.69, above Tyson's $50 per share offer, suggesting that some investors expect a bidding war.
The overture from Tyson, the biggest U.S. meat processor, trumped Pilgrim's $45 per share bid earlier this week.
Both all-cash bids include the assumption of Hillshire's debt.
Tyson put the total value of its bid at $6.8 billion, based on 125 million outstanding Hillshire shares and debt of roughly $500 million.
About two weeks ago, Hillshire said it planned to buy Pinnacle Foods Inc (PF.N), known for its Birds Eye frozen vegetables, in a deal it valued at $4.3 billion excluding debt. That pact, considered less appealing by some investors and analysts, could be in peril as the Tyson and Pilgrim's bids require Hillshire to terminate the Pinnacle deal.
Hillshire said in a statement that it would thoroughly review Tyson's proposal.
Pilgrim's, which valued its offer at $6.4 billion including debt and a $163 million breakup fee, said it is considering its options and would "update the markets in due course." Brazilian meatpacking giant JBS SA (JBSS3.SA) owns about 75 percent of Pilgrim's.
Tyson executives would not comment on Pilgrim's offer, but said on a media call that they were prepared to issue equity.
"We have a lot of flexibility in what we can do," Tyson Chief Financial Officer Dennis Leatherby said.
As U.S. consumers add more protein and fresh food to their diets, food sellers seek to turn the trend into profit.
"We thought this might happen given the heated land grab underway in the food sector over the past year as companies large and small scramble after choice assets to grow market share, optimize and expand product lines, and whittle costs to boost profits," Vicki Bryan, senior high yield analyst, at corporate bond research service Gimme Credit, said in a note.
Tyson's prepared foods business focuses on foodservice clients and private label. The acquisition would raise its profile in the grocery aisle, where Hillshire also sells Aidells artisan sausages, Ball Park hot dogs and Jimmy Dean bacon.
The company said the merger would provide it with "stable and consistent demand for protein products".
Tyson said it secured financing from Morgan Stanley Senior Funding Inc for the deal, which is expected to add to its earnings in the first year after completion.
Shares of Tyson were up 6.6 percent at $43.43, while Pilgrim's stock fell 1.5 percent to $25. Pinnacle shares were up 1.1 percent at $31.71.
(Reporting by Lisa Baertlein in New York and Devika Krishna Kumar in Bangalore; Editing by Saumyadeb Chakrabarty, Bernadette Baum and Andrew Hay)