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Hillshire Brands investors reacted with a tepid enthusiasm for its agreement in early May to buy frozen vegetable maker Pinnacle Foods. (Toby Talbot/AP)
Hillshire Brands investors reacted with a tepid enthusiasm for its agreement in early May to buy frozen vegetable maker Pinnacle Foods. (Toby Talbot/AP)

Pilgrim’s Pride turns Hillshire from predator to prey Add to ...

Pilgrim’s Pride has positioned itself atop the latest M&A food chain. The U.S. poultry producer on Tuesday swooped on Hillshire Brands with an unsolicited $6.4-billion (U.S.) takeover bid, two weeks after the sausage maker agreed to buy frozen-vegetable purveyor Pinnacle Foods. The earlier $6.6-billion deal hasn’t satisfied investor palates much. Intended or not, though, it did at least smoke out a strategically and financially superior bid.

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While Pilgrim’s has had an eye on Hillshire since it was spun out of the old Sara Lee conglomerate nearly two years ago, the Pinnacle deal provided an opening for Darwinian measures. Hillshire shares dropped by about 6 per cent after it unveiled the plan to combine its meat with Pinnacle’s peas.

The new deal presents some clear merits for Hillshire owners. For one thing, they’d pocket cash, at a 22-per-cent premium to where the shares were trading before Pilgrim’s showed up, instead of the work and time needed to make the most of devouring a company outside its species. Pinnacle also would load Hillshire up with debt, eating into the funds available for buybacks.

It’s also easier to see the logic of combining chicken products with Jimmy Dean breakfast sausages and Ball Park frankfurters at a time when demand for proteins is rising globally. While Pilgrim’s didn’t outline specific synergy targets, analysts at JPMorgan estimate they could be higher than the $140-million of annual savings touted in the Pinnacle transaction. And those might amount to about $840-million, taxed and capitalized, for Hillshire, short of the $1-billion premium Pilgrim’s is offering.

At least one side already has secured investor approval. Pilgrim’s controlling shareholder is Brazilian meat producer JBS, which has backed the transaction. And assuming Hillshire is willing to walk away from Pinnacle, Pilgrim’s also would pick up the modest $163-million break tab.

Hillshire said it would “thoroughly review” the new offer. The company’s shareholders are enthusiastic about it, pushing the stock above the $45 price on offer from Pilgrim’s. That suggests Pilgrim’s – or perhaps another suitor waiting in the wings – may have to pay a bit more. Either way, though, it looks as though Hillshire will be prey, not predator.

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