Tyson Foods Inc., the largest U.S. meat company, agreed to buy Chicago-based Hillshire Brands Co. for about $7.7 billion after outbidding Pilgrim's Pride Corp. to gain control of the maker of Jimmy Dean sausages and Ball Park hot dogs.
Tyson will pay $63 a share, it said today in a statement. Including net debt, the deal is worth $8.55 billion, the Springdale, Arkansas-based company said.
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Tyson outbid Pilgrim's, the chicken producer 75 percent owned by Brazil's JBS SA, which had the high offer previously at $55 a share. After the offer reached that level, Hillshire agreed to enter talks with both suitors.
The contest for Hillshire illustrates traditional meatpackers' desire to gain consumer brands that offer fatter profit margins than those available from slaughtering livestock. Tyson, led by Chief Executive Officer Donnie Smith, is looking to expand further into branded, value-added packaged foods that have wider margins and more stable earnings compared with its traditional commodity meat business.
Hillshire, known as Downers Grove-based Sara Lee Corp. before splitting off its tea and coffee segment in June 2012, has focused since the spinoff on improving lunch-meat quality, creating new hot dog varieties and winning over more customers with lower-calorie breakfast sandwiches. Combining Tyson and Hillshire will create a company with $39.4 billion of annual sales and $1.2 billion of net income, according to data compiled by Bloomberg based on trailing 12-month figures.
Shares of Hillshire rose 0.4 percent to $58.92 on June 6, giving it a market value of about $7.2 billion. It has traded above $55 a share since June 3, when Hillshire authorized talks with both suitors, indicating investors expected a higher offer. Tyson Foods fell 1.5 percent to $39.50 in early New York trading.
Both Pilgrim's Pride and Tyson had insisted when agreeing to enter the talks that Hillshire would drop its earlier agreement to buy Pinnacle Foods Inc., the producer of brands including Vlasic pickles, for $6.6 billion including debt. Under terms of that deal, Hillshire would owe a $163 million breakup fee.
Tyson made an unsolicited $50 a share, or $6.2 billion, offer for Hillshire on May 29, trumping Pilgrim's first proposal. That was 35 percent more than Hillshire's closing price before it received Pilgrim's unsolicited proposal May 27. Buying Hillshire would be Tyson's biggest deal, surpassing its 2001 acquisition of beef producer IBP Inc., according to data compiled by Bloomberg.
"It makes a lot of financial sense to buy Hillshire now that they have low debt levels, they have very strong cash flow," Bryan Agbabian, San Francisco-based sector head for agricultural equities for Allianz Global Investors, said by phone earlier.
Tyson said today that the takeover would "marginally" add to its earnings per share in the first full year after the deal's completion. The company has bridge financing arranged by Morgan Stanley and said JPMorgan Chase & Co. is expected to help fund the deal as well. The two investment banks are Tyson's financial advisers on the bid and Davis Polk & Wardwell LLP is its legal counsel.
Hillshire has net debt of $553 million, according to data compiled by Bloomberg. It had free cash flow of $174 million in the 12 months through March, the data shows.