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Hillshire Brands Moves To End Pinnacle Deal
USAgNet - 06/18/2014

Hillshire Brands announced that in light of a more favorable offer by Tyson Foods, its board no longer recommends a merger with Pinnacle Foods. Announced on May 12, the $6.6 billion Hillshire--Pinnacle deal was broadly criticized by analysts and investors alike. It also led to a fierce bidding war between two of the world's largest meat processing companies for Hillshire Brands, reports Forbes.

Tyson Foods recently won the bidding war against JBS-backed Pilgrim's Pride as it offered to buy the maker of Jimmy Dean breakfast sausages for $63 per share in cash, beating Pilgrim's Pride's final offer by $8 per share.

Formerly known as Sara Lee Corporation, the company sells a variety of packaged meat products including hot dogs, corn dogs, breakfast sausages, dinner sausages and deli meats, as well as a variety of frozen baked products.

Through the acquisition of Pinnacle Foods, Hillshire Brands planned to increase its bargaining power with Wal-Mart and other supermarkets by expanding its shelf space through a broader product offering. The company also expected to gain from diversifying away from packaged meat products by reducing its sensitivity to fluctuations in hog and beef prices. Furthermore, it also expected to capture value from lower per unit costs of the consolidated company. However, the biggest drawback of the deal was its potential impact on the company's debt load, which would have increased significantly to around 5x the adjusted EBITDA of the combined company.

Under the terms of Hillshire Brands, Pinnacle Foods merger agreement, Hillshire Brands does not yet have the right to terminate the deal on the basis of Tyson Foods' offer or enter into an agreement with Tyson Foods prior to its termination. However, as a result of the recent change in Hillshire Brands' board's recommendation, Pinnacle Foods may decide to terminate the deal. If it does so before a vote on the transaction by Hillshire Brands' shareholders, the company would be entitled to receive a termination fee of $163 million from Hillshire Brands.

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