Top Brands Fuel Tyson's Biggest Play

by Marty Cook  on Monday, Jul. 21, 2014 12:00 am  

Donnie Smith

It was all about the brands for Tyson Foods Inc. of Springdale.

Tyson officially began the process of buying Hillshire Brands Co. of Chicago on Wednesday, according to a filing with the Securities & Exchange Commission. The meat processor giant expects to pay a shade over $8 billion for more than 124 million outstanding shares at $63 per share.

Throw in another $553 million to assume Hillshire’s net debt and the $8.55 billion price tag is steep, even for a deep-pocketed, profitable company such as Tyson. Hillshire will become a wholly owned subsidiary of Tyson after the deal’s completion.

For Tyson executives, though, the chance to acquire Hillshire’s enviable top-rated brands was irresistible. Tyson CFO Dennis Leatherby called the chance to buy Hillshire, even at such a premium price, a “one plus one equals three opportunity” in a conference call May 29 when Tyson announced its original attempt to buy Hillshire at $50 per share or approximately $1.7 billion less than the final tally.

Leatherby said the acquisition makes strategic sense for Tyson, which has announced a desire to drive growth in its prepared foods division. Tyson’s prepared foods division is 86 percent private label, while Hillshire is 89 percent brand names, and not just any brand names but top brands such as Ball Park hot dogs and Jimmy Dean sausage.

“When you think about that, the power of combining those together is just phenomenal,” Leatherby said. “It’s really just a great combination.”

For good measure, Tyson will send another $163 million to Pinnacle Foods Inc. of Parsippany, New Jersey, as a condition of the deal. Hillshire had sought to purchase Pinnacle for $4.23 billion in early May, but Tyson would only consummate its acquisition of Hillshire if the Pinnacle deal was scotched.

Tyson’s payment is a termination fee on behalf of Hillshire for abandoning the Pinnacle purchase. Tyson’s purchase of Hillshire is the largest in company history, dwarfing its $3.2 billion acquisition of IBF Inc. of Dakota Dunes, South Dakota, in 2001.

Tyson originally attempted to purchase Hillshire at $50 per share, but competition from Pilgrim’s Pride of Greeley, Colorado, soon morphed into a brief bidding war that pushed Hillshire’s per-share value up by 70 percent — some $3.2 billion.

Tyson, which earned $213 million on revenue of $9.03 billion for the fiscal quarter that ended March 29, would surely have preferred to scoop up Hillshire for more of a bargain, but CEO and President Donnie Smith said the opportunity couldn’t be passed up, even after the price tag soared.

“We operate in a competitive and complex marketplace that demands bold steps to remain an industry leader,” said Smith in a statement after the definitive agreement was signed July 2. “I am confident that together Tyson Foods and Hillshire Brands have the right products and the right people to create years of enhanced shareholder value and ensure more choices for our customers and consumers.”

Hillshire’s acquisition was Tyson’s fourth in the prepared food segment in the past 18 months. In February 2013, Tyson bought Don Julio Foods of Clearfield, Utah, a maker of tortillas and snacks, and in June of that same year, Tyson acquired Circle Foods LLC from a Montreal investment firm.



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