Tyson To Acquire Hillshire For $7.8 Billion

The Chicago Tribune reported Monday that the largest U.S. meat company, Tyson Foods TSN, agreed to buy Hillshire Brands HSH for $63 per share in a deal worth $7.8 billion, excluding debt.

With the acquisition, Tyson, which outbid Pilgrim’s Pride PPC, will now control the maker of such popular brands as Jimmy Dean sausage and Ball Park franks.

Pilgrim’s Pride, which is 75 percent owned by Brazil’s JBS SA, had previously offered $55 per share or approximately $6.7 billion.

The prize in this high-stakes meat buy was Hillshire’s highly-publicized brand names. In addition to Jimmy Dean and Ball Park, Hillshire’s other brands include Sara Lee Desserts and Deli, Kahn’s and Hillshire Farm.

Related: Tyson Recalls Over 75,000 Pounds Of Frozen Nuggets

Branded packaged foods like these offer Tyson wider margins and more consistent earnings than the company would gain from its traditional commodity meat business. Bloomberg estimated that the combination of Tyson and Hillshire would create a company capable of generating $39.4 billion in annual sales and $1.2 billion in net income. Bloomberg based those estimates on trailing 12-month numbers.

Hillshire closed Friday at $58.92 and had consistently traded above the $55 per share previous Pilgrim’s Pride offer, which indicated that investors anticipated talks would produce a higher offer in the end.

Hillshire’s previous agreement to buy Pinnacle Foods PF, which makes Vlasic pickles, for $6.6 billion including debt, would have been terminated no matter which company won the takeover battle since neither Pilgrim’s Pride nor Tyson were interested in that acquisition. Canceling that deal cost Hillshire $163 million in breakup fees.

Hillshire shares saw a sharp rise in value following the first Pilgrim's Pride takeover bid in May. At that time, the stock traded for around $37 per share.

The Hillshire deal will be Tyson’s costliest acquisition ever, according to Dealogic. The Wall Street Journal indicated it could be the largest acquisition in the history of the entire meat industry.

Tyson said it plans to fund the acquisition with cash and a fully committed bridge facility from Morgan Stanley and JP Morgan. In addition, the company said it will issue additional shares as part of the funding package.

In a statement, Tyson President and CEO Donnie Smith 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’s offer will stay on the table until December 12, pending termination of Hillshire’s offer to buy Pinnacle, the Chicago Tribune said.

At the time of this writing, Jim Probasco had no position in any mentioned securities.