June 3, 2014 / 11:06 AM / 5 years ago

UPDATE 3-Pilgrim's Pride tops Tyson Foods' offer for Hillshire

* Pilgrim’s offers $55 per share, up from $45 earlier

* Hillshire shares up 9 pct, above offer price

* Pilgrim’s, Tyson shares down 2 pct (Adds analysts’ comments and details, updates share movements)

By Sruthi Ramakrishnan and Devika Krishna Kumar

June 3 (Reuters) - Pilgrim’s Pride Corp, the second largest U.S. chicken processor, raised its offer for Hillshire Brands Co, escalating a bidding war with Tyson Foods Inc for the maker of Jimmy Dean sausages.

Hillshire shares rose more than 9 percent to a life high of $58.50 on the New York Stock Exchange on Tuesday morning, after Pilgrim’s Pride said it raised its offer to $55 per share from $45.

Tyson Foods spokesman Worth Sparkman declined to comment. The company, the world’s second largest meat processor after Brazil’s JBS SA, had offered $50 per share.

JBS owns about 75 percent of Pilgrim’s Pride.

The bids pit the two largest meat processors against each other as they seek to expand margins that have been hit by low prices and volatile feed costs.

Hillshire has significantly higher pricing power as it sells brands such as Jimmy Dean and Ball Park sausages, which are number one or two in their categories.

“Tyson is likely to emerge as the winner of the bidding war, given the relative strength of its balance sheet,” KeyBanc Capital Markets analyst Akshay Jagdale wrote in a note.

Tyson had long-term debt of $1.89 billion and cash and cash equivalents of $438 million on March 29, according to its latest quarterly filing. The company was valued at $15.12 billion, based on the Monday closing price of its shares.

“It is a good time to go shopping for higher margin businesses,” Trefis analysts said based on Tyson’s current debt position.

Tyson shares were down 2 percent on the New York Stock Exchange.

Pilgrim’s Pride shares were also down nearly 2 percent on the Nasdaq, while shares of JBS fell the same amount on the Sao Paulo Stock Exchange.

Hillshire said on Tuesday it would “provide information” to both bidders and conduct talks with them.

Pilgrim’s Pride said its offer valued Hillshire at $7.7 billion, including debt. Tyson Foods’ offer values Hillshire at $6.8 billion, including $500 million in debt.

Pilgrim’s Pride said the raised offer represented a 49 percent premium to Hillshire’s share price a day before Hillshire announced a bid for Pinnacle Foods Inc.

Hillshire said on May 12 that it planned to buy Pinnacle, the maker of Birds Eye frozen vegetables, for $4.3 billion.

The two offers made last week, however, require Hillshire to terminate the deal that was considered unattractive by some investors and analysts as Hillshire would have had to take on nearly $2.3 billion in debt.

“Pinnacle shouldn’t hold its breath for a deal with Hillshire at this stage. That ship has likely sailed,” Rapid Ratings Chief Executive James Gellert said.

Hillshire said on Tuesday it was neither making any recommendation with respect to the offers nor modifying or withholding its merger agreement with Pinnacle. (Reporting by Devika Krishna Kumar and Sruthi Ramakrishnan in Bangalore; Editing by Kirti Pandey and Joyjeet Das)

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