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Tyson Foods Would Boost Prepared Foods in $8.5B Hillshire Deal

3 min read

Tyson Foods Inc. of Springdale on Sunday submitted a winning $7.75 billion bid in a battle for Hillshire Brands of Chicago, an acquisition the meat processor says represents a “transformational opportunity” for the company.

Tyson Foods announced the deal early Monday after a weekend of bidding against Pilgrim’s Pride of Greeley Colorado, which made the first proposal for Hillshire late last month. Pilgrim’s Pride last offered $55 per share for the company, and has now withdrawn its offer.

Tyson Foods’ proposal is $63 per share, or about $7.75 billion based on 123 million Hillshare shares outstanding. Including debt, the deal is worth $8.55 billion, which meat industry observers say is the industry’s biggest deal ever.

The deal is also Tyson Foods’ biggest acquisition, more than double the its $3.2 billion cash-and-stock merger with beef and pork company IBP Inc. of Dakota Dunes, South Dakota, in 2001. That deal expanded Tyson Foods’ market share and put the company back in the pork business.

Tyson’s combination with Hillshire will help it expand its prepared food business, bringing valuable brands under the Tyson umbrella, including Ball Park hot dogs and Jimmy Dean sausages. It will make Tyson Foods the No. 2 player in value-added foods, where companies can enjoy bigger margins than pure chicken, beef and pork processing.

Hillshire has about 9,000 employees and $4 billion in annual sales.

“The Hillshire Brands acquisition would represent a defining moment for Tyson Foods,” Donnie Smith, Tyson’s president and CEO, said in a news release. “Our strategy has been to grow our prepared foods business, and it has been our aspiration to be a leader in retail prepared foods just as we are in chicken. Now we will have those iconic No. 1 and No. 2 brands in numerous categories.”

More: Read Tyson Foods’ announcement.

“Tyson Foods has a history of growing through strategic acquisition,” John Tyson, chairman of the board, said. “It is the view of the board of directors that this is truly a transformational opportunity and one that best fits with our strategic plan while enhancing our margins and creating long-term shareholder value.”

Tyson Foods’ board of directors has unanimously approved the deal. The company said the Tyson family and the board are prepared to issue shares to maintain the company’s investment grade credit rating.

The deal is contingent on Hillshire terminating its agreement to buy Pinnacle Foods, which makes Birds Eye frozen vegetables, Wish-Bone salad dressings and Duncan Hines cake mixes. Hillshire announced that $4.23 billion deal in early May as a way to expand into different parts of the supermarket.

Hillshire’s board has yet to approve Tyson’s offer. In a statement on Monday, the company said it “does not have the right to terminate the merger agreement with Pinnacle Foods or enter into an agreement with Tyson Foods prior to its termination.

“There can be no assurance that any transaction will result from the Tyson Foods offer,” Hillshire said.

In a conference call on Monday, Smith said it was too early to talk about how the companies might combine operations, or whether the deal would consolidate plants, cause layoffs or result new roles for Hillshire executives like CEO Sean Connolly, who he called a “fantastic leader.”

Still, Smith is expecting $300 million in annual synergies under the merger, including cost savings in distribution, purchasing, marketing and supply chain.

“We want to buy this business for what it can become, not just what it is now,” Smith said.

Smith said Tyson Foods’ interest in Hillshire came after planning about the company’s future. He said company leaders met about a year ago to discuss long-term plans, including growing Tyson’s prepared food segment and its valued-added chicken business.

Smith said when the company looked at potential mergers, Hillshire met all the criteria.

(The Associated Press contributed to this report.)

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