Hillshire Brands to Acquire Pinnacle Foods

Deal unites highly complementary companies with iconic food, snack brands

Hillshire Brands Pinnacle Foods (CSP Daily News / Convenience Stores / Snacks & Candy)

CHICAGO & PARSIPPANY, N.J. -- The Hillshire Brands Co. and Pinnacle Foods Inc. have entered into an agreement under which Hillshire Brands will acquire all outstanding shares of Pinnacle Foods in a cash and stock transaction.

The total enterprise value of the transaction is approximately $6.6 billion, including Pinnacle Foods' outstanding net debt, which reflects an adjusted EBITDA multiple of 9.6x. The transaction brings together two highly complementary businesses with leading, iconic brands to create a diversified food company with estimated pro forma 2014 sales of $6.6 billion. On a combined basis, the companies will have leading positions in key frozen, refrigerated and center-of-store grocery and convenience store categories.

The combined company will have a significantly expanded portfolio and enhanced operating capabilities, including:

  • High Quality Brands. The new Hillshire Brands will enhance its strong category positioning through its robust brand portfolio of 10 leading brands, including Jimmy Dean, Hillshire Farm, Birds Eye, Ball Park, Duncan Hines, Vlasic, Wish-Bone, State Fair, Sara Lee frozen bakery, Mrs. Butterworth's and Log Cabin, among others.
  • Increased Scale and Presence in Frozen, Center Store and Refrigerated. The combined company's enhanced scale will significantly increase its presence with its key customer base. With leading brands and strong positions across the frozen, refrigerated and center- store categories, the company will have the opportunity to further enhance its relationships with leading retailers. By extending Hillshire Brands' reach into the center store and Pinnacle Foods' reach into refrigerated, the transaction will create a platform with new revenue opportunities.
  • Greater Diversification. A larger portfolio across a range of categories will deliver greater revenue and input cost diversification increasing the cash flow consistency of the combined company.
  • Enhanced Operational Platform. The transaction will bring together two best-in-class operators with a shared low-cost operational approach and scalable infrastructure creating a stable platform for future expansion opportunities.

The combined company will operate under the Hillshire Brands name and will have its headquarters in Chicago. Sean Connolly will serve as president and CEO of the combined company.

"The combination of Hillshire Brands and Pinnacle Foods brings together two highly complementary organizations with strong brands, skilled employees and lean cost structures," said Connolly, president and CEO of Hillshire Brands. "The acquisition creates a leading branded food company with enhanced scale, reach and capabilities while providing margin expansion and strong EPS accretion. The new Hillshire Brands will have a strengthened position in frozen foods, new opportunities in the center store for our brands and in refrigerated for Pinnacle Foods' brands. We believe our increased scale combined with a more diversified portfolio will deliver strong, consistent cash flows. This will enable us to continue to invest in our brands, enhance our portfolio, pursue value accretive M&A and deliver significant long-term value to our shareholders."

"This compelling transaction offers Pinnacle Foods shareholders an immediate premium and the opportunity to participate in the tremendous potential of the combined organization," said Bob Gamgort, CEO of Pinnacle Foods. "The complementary portfolios and strategic fit of these two companies create significant value for the shareholders of both organizations. Our common passion for developing innovative products and maintaining close ties with our customers will position the combined entity to deliver outstanding benefits for employees, customers and shareholders."

The boards of directors of both companies unanimously approved the transaction, which is expected to close by Sept. 2014, subject to shareholder and regulatory approvals and other customary closing conditions.

Hillshire Brands will appoint a representative from Blackstone, which holds approximately 51% of Pinnacle Foods' outstanding common stock, to its board upon the closing of the transaction.

The combination is expected to be immediately accretive to earnings. By the end of year three, Hillshire Brands expects the combined company to achieve $140 million in estimated annual cost synergies, primarily derived from supply chain enhancements and the consolidation of overhead expenses, and annual EPS accretion in excess of 15%.

The company also expects to realize incremental revenue growth opportunities based on its expanded brand portfolio and broader in-store reach.

Parsippany, N.J.-based Pinnacle Foods is a major producer, marketer and distributor of high-quality branded food products. It is a leader in the shelf-stable and frozen foods segments. Its Duncan Hines Grocery Division manages brands such as Duncan Hines baking mixes and frostings, Vlasic and Vlasic Farmer's Garden shelf-stable pickles, Wish-Bone and Western salad dressings, Mrs. Butterworth's and Log Cabin table syrups, Armour canned meats, Brooks and Nalley chili and chili ingredients, Duncan Hines Comstock and Wilderness pie and pastry fruit fillings and Open Pit barbecue sauces. Our Birds Eye Frozen Division manages brands such as Birds Eye, Birds Eye Steamfresh, C&W, McKenzie's, and Freshlike frozen vegetables, Birds Eye Voila! complete bagged frozen meals, Van de Kamp's and Mrs. Paul's frozen prepared seafood, Hungry-Man frozen dinners and entrées, Aunt Jemima frozen breakfasts, Lender's frozen and refrigerated bagels, and Celeste frozen pizza. Our Specialty Foods Division manages Tim's Cascade Snacks, Hawaiian kettle style potato chips, Erin's popcorn, Snyder of Berlin and Husman's snacks, in addition to its foodservice and private-label businesses.

Hillshire Brands, Chicago, is a leader in branded, convenient foods. The company generated approximately $4 billion in annual sales in fiscal 2013. Hillshire Brands' portfolio includes iconic brands such as Jimmy Dean, Ball Park, Hillshire Farm, State Fair, Sara Lee frozen bakery and Chef Pierre pies, as well as artisanal brands Aidells, Gallo Salame and Golden Island premium jerky.