Tyson Foods, Hillshire Settle With Justice Department Over $8.5B Merger

by Lance Turner  on Wednesday, Aug. 27, 2014 1:56 pm  

Tyson Foods Inc. of Springdale and Hillshire Brands Co. of Chicago said Wednesday that they have reached a settlement with the U.S. Department of Justice's Antitrust Division that, if approved, would allow the companies' $8.5 billion merger to proceed.

In a news release, the two companies said the settlement had been filed Wednesday in the U.S. District Court for the District of Columbia.

"The settlement is subject to approval by the court under the traditional procedures set forth in the Antitrust Procedures and Penalties Act," the companies said.

The settlement includes Tyson divesting its Heinold Hog Markets subsidiary, which buys and resells sows. The subsidiary had about $270 million in revenue in 2013, according to court documents. Tyson must sell the operation within 90 days, although extensions are available under certain conditions.

Tyson (NYSE: TSN) extended its tender offer for Hillshire three times after the Justice Department's Antitrust Division requested more details about the deal. Tyson has said the request relates "only to a very small portion of the combined Tyson/Hillshire Brands business," and that it still expects the deal, reached in July, to go through.

Tyson's original tender offer was set to expire on July 16. The latest extension, announced Tuesday, was to expire at midnight. 

The government's inquiry examined Tyson's and Hillshire's businesses purchasing sows from farmers. The Antitrust Division, along with attorneys general in Illinois, Iowa and Missouri, argued that  Tyson's purchase of Hillshire would combine two of the industry's major purchasers of sows from U.S. farmers and "create a company that would account for approximately 35 percent of all purchases in this market."

In the settlement proposal filed Wednesday, the government argued that farmers had benefited from the competition between Tyson and Hillshire's respective operations. It said a combination of the companies would eliminates "a significant competing bidder," and that "bidding is likely to be less aggressive and farmers are likely to receive lower prices for sows."

"As the prices offered decrease, farmers may need to ship sows to more distant purchasers," the government said. "This additional shipping time and cost constitute an economic inefficiency that would follow from the elimination of competition between Hillshire and Tyson."

Last month, a coalition of 82 farm, consumer and community groups urged the Justice Department to extend its division’s review of the deal.

The groups sent a co-signed letter (PDF) to William Baer, the assistant attorney general of the Antitrust Division, saying that the merger would "substantially lessen competition, or tend to create a monopoly," which is forbidden by Section 7 of the Clayton Act.

If approved, the settlement paves the way for Tyson's biggest acquisition ever. In July, the company outbid Pilgrim’s Pride of Greeley, Colorado, for Hillshire, eventually agreeing to pay $63 per share for Hillshire's 124 million outstanding shares while assuming $553 million in Hillshire debt.

Hillshire has top brands such as Ball Park hot dogs and Jimmy Dean sausage.



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