Pilgrim's Pride Makes Bid for Hillshire Brands

Deal would derail Hillshire's acquisition of Pinnacle Foods

Pilgrim's Pride Hillshire Pinnacle food service (CSP Daily News / Convenience Stores / Foodservice)

GREELEY, Colo. -- Pilgrim's Pride Corp. has made a proposal to acquire The Hillshire Brands Co. for $6.4 billion. It said that its all-cash proposal provides Hillshire shareholders with a "substantially superior alternative to Hillshire's pending acquisition of Pinnacle Foods Inc., representing a 25% premium to the volume weighted average price of Hillshire shares over the 10 trading days following the announcement of the Pinnacle transaction."

The transaction represents a "compelling value" to Hillshire shareholders at $45 per share and 12.5x Hillshire's trailing adjusted EBITDA, Pilgrim's Pride said. The offer includes a $163 million termination fee payable to Pinnacle.

Earlier this month, Hillshire Brands Co., Chicago, and Pinnacle Foods Inc., Parsippany, N.J., entered into an agreement under which Hillshire Brands would acquire all outstanding shares of Pinnacle Foods in a cash and stock transaction of approximately $6.6 billion, including Pinnacle Foods' outstanding net debt. The deal would bring together two highly complementary businesses with leading, iconic brands to create a diversified food company with estimated 2014 sales of $6.6 billion. Combined, the companies would have leading positions in key frozen, refrigerated and center-of-store grocery and convenience store foodservice categories.

"We continue to strongly believe in the strategic merits and value creation potential provided by the proposed transaction with Pinnacle Foods," Hillshire Brands said in a statement responding to Pilgrim's "unsolicited" proposal. "Consistent with its fiduciary duties, and in consultation with its independent financial and legal advisors, Hillshire Brands' board will thoroughly review the Pilgrim's Pride proposal."

The proposal has the unanimous support of the board of directors of Pilgrim's, as well as the support of JBS S.A., the majority owner of Pilgrim's. It anticipates that the proposed transaction would close in third-quarter 2014 and would be subject to customary closing conditions and the termination of Hillshire's merger agreement with Pinnacle.

Pilgrim's said it would finance the acquisition with a combination of existing cash balances and new debt financing.

The transaction would create a leading branded, protein-focused company. Together, the companies would have combined revenues of $12.4 billion and EBITDA of $1.4 billion.

The combined companies would offer diversified and complementary product portfolios and customer bases--a portfolio of Pilgrim's and Hillshire brands, including Pierce, Wing Dings, Jimmy Dean, Hillshire Farm, Ball Park and State Fair.

It would also offer complementary channels with shared culture of partnering with customers--Pilgrim's expertise in foodservice brand and supermarket deli and Hillshire's experience in retail.

Other benefits include Pilgrim's strong operational efficiency systems and processes align with Hillshire's innovation and marketing capabilities and strong synergy and growth opportunities: Pilgrim's expects cost synergies to come from operational and value-chain efficiencies and significant growth opportunities in higher margin branded products, both in North America and internationally.

Meanwhile, appreciating the importance of Hillshire's heritage and connections with the communities in which it operates, Pilgrim's would make Chicago a major center of North American operations.

"Our proposal creates considerable value for the shareholders of both Pilgrim's and Hillshire," said Bill Lovette, Pilgrim's CEO. "For Hillshire shareholders, our proposal provides a substantial premium, greater certainty and immediate cash value for their shares. We have long respected the Hillshire business, and we are confident that Hillshire's board and shareholders will find our all-cash premium proposal to be superior to the pending acquisition of Pinnacle. For Pilgrim's, the addition of Hillshire's portfolio of iconic brands and broad based marketing, innovation and distribution expertise will enhance our position as a market leader. With our complementary products, we believe that together Pilgrim's and Hillshire will better serve our combined customer bases for the benefit of all our stakeholders. We look forward to working constructively with Hillshire to sign a definitive merger agreement and quickly realize the benefits of this combination."

Pilgrim's Pride operates chicken processing plants and prepared-foods facilities in 12 states, Puerto Rico and Mexico. Its primary distribution is through retailers and foodservice distributors.