Tyson Foods Submits $8.55 Bln Binding Offer To Acquire Hillshire Brands

(RTTNews) - Meat producer Tyson Foods, Inc. (TSN) Monday said it has submitted a unilaterally binding offer to acquire all outstanding shares of Hillshire Brands Co. (HSH) for $63 per share in cash.

This follows a bidding process conducted by Hillshire that concluded on June 8. The all-cash transaction is valued at around $8.55 billion, including Hillshire Brands' outstanding net debt.

Tyson expects that the proposed transaction would be marginally accretive to earnings per share on a cash basis in the first full fiscal year after completion and substantially accretive thereafter.

The proposal represents a multiple of 16.7 times trailing 12 months adjusted Earnings Before Interest, Tax, Depreciation and Amortization or EBITDA or 10.5 times including $300 million in synergies.

Hillshire Brands, the maker of Jimmy Dean sausages and Ball Park hot dogs, hit the headlines last month when on May 27, Pilgrim's Pride Corp. (PPC), a unit of Brazilian meat giant JBS SA, proposed to acquire all its outstanding common stock for $45 per share in cash. Two days later, Tyson announced its proposal to acquire Hillshire for $50 per share in cash.

Hillshire is party to a merger agreement with Pinnacle Foods following which Hillshire Brands agreed to acquire Pinnacle Foods for per share consideration of $18 in cash and 0.5 shares of Hillshire Brands common stock.

Both the Pilgrim's Pride and Tyson Foods proposals were conditioned on the termination of the Pinnacle Foods merger agreement.

On June 1, Pilgrim's Pride increased its offer to $55 per share in cash. On June 3, Hillshire said its board would conduct separate discussions with Pilgrim's Pride and Tyson with regard to their recent unsolicited proposals.

Meanwhile, Hillshire Brands's board of directors confirmed the receipt of the offer. It said it has not approved the Tyson Foods offer, has not changed its recommendation regarding the Pinnacle merger and is not making any recommendation with respect to the Tyson offer.

Hillshire Brands does not have the right to terminate the merger agreement with Pinnacle Foods on the basis of the Tyson Foods offer 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, it added.

Donnie Smith, Tyson's president and CEO, said, "The Hillshire Brands acquisition would represent a defining moment for Tyson Foods. 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 #1 and #2 brands in numerous categories."

Tyson expects the combination to reposition the meat producer as a clear leader in the retail sale of prepared foods, with a complementary portfolio of well-recognized brands, including Tyson, Wright Brand, Jimmy Dean, Ball Park, State Fair and Hillshire Farm.

In particular, the strength of Hillshire Brands' products in the breakfast category would allow Tyson to capture opportunities in this fast-growing day part.

The deal would be funded by cash on hand and a fully committed bridge facility from Morgan Stanley Senior Funding, Inc. and JP Morgan Securities LLC.

Tyson expects to maintain its investment grade credit rating and is prepared to issue debt and equity as prudent. The firm expects that the substantial cash flow from the combined companies will enable it to rapidly pay down debt.

Tyson expects to realize annual synergies of over $300 million, driven primarily by operational efficiencies, purchasing, distribution, supply chain efficiencies, upgrading raw materials.

Synergies are expected in the first full fiscal year with the total synergies to be realized by the end of the third year. Tyson's pork processing operations will benefit from stable and consistent demand for its raw materials for use in Hillshire Brands' branded, value-added products. The offer was unanimously approved by the Board of Directors of Tyson Foods. The offer will remain in effect until December 12, the final termination date of the Hillshire Brands/Pinnacle Foods agreement.

If that agreement is terminated in accordance with its terms, Hillshire Brands would be able to accept the offer, and binding definitive agreements could become effective.

Morgan Stanley and JP Morgan are acting as financial advisors to Tyson Foods, and Davis Polk & Wardwell LLP is acting as its legal counsel.

TSN closed down 1.9 percent at $40.12 on Friday. HSH settled up 0.4 percent at $58.92 and is gaining 4.9 percent in pre-market trading. PPC dropped 1.1 percent at $26.27.