Pilgrim's Pride, which is the world's second largest poultry producer, on Tuesday offered to acquire the giant meat producer, Hillshire Brands, eager to latch onto the company's familiar brands that include Jimmy Dean sausages, Ball Park hot dogs and Hillshire Farms lunch meats. Hillshire also makes Sara Lee-branded frozen baked goods.
At the grocery store, in the pantry and inside the kitchen -- even in a challenging economy -- consumers continue to be attracted to iconic brands that deliver perceived value. That's one reason why, earlier this month, Hillshire pressed to purchase Pinnacle, whose household name brands include Birds Eye frozen vegetables and Duncan Hines cake mixes.
"We intend to extend Hillshire Brands into more categories," Pilgrim's CEO Bill Lovette said in a conference call Tuesday morning. Among those, he noted, is an expansion into natural and antibiotic-free products. The combination of Pilgrim's Pride and Hillshire, he said, "creates the most powerful branded combo of meat products in the industry."
Even than, BMO Capital Markets analyst Kenneth B. Zaslow, also on the conference call, said that he expects some "push back" from Hillshire.
There was strong reaction on Wall Street. In morning trading, Hillshire Brands jumped nearly 22% to $45.10. Pilgrim's Pride jumped more than 4% to $26.20. Pinnacle Foods fell 6% to 31.13.
Pilgrim's Pride, which is the U.S. division of the Brazilian meat company JBS, insists the deal is better than Hillshire's plan to purchase Pinnacle. Pilgrim's offer is $45 a share, which represents a 25% premium to the volume-weighted price of Hillshire shares over the preceding 10 days, said Pilgrim, in a statement.
"For Hillshire shareholders, our proposal provides a substantial premium, greater certainty and an imm! ediate cash value for their shares," said Lovette, in a statement. He said the deal could close in the third quarter of 2014, if Hillshire nixes its deal with Pinnacle.
As part of its deal to buy Hillshire Brands, Pilgrim's Pride would pay the $163 million termination fee payable to Pinnacle if Hillshire terminates its prior deal with Pinnacle.
Hillshire officials declined to comment on Tuesday.
But in the conference call, Lovette took great pains to describe some of the synergies that he envisions between the two companies.
For example, he noted, Pilgrim's Pride has taken a team of engineers into six of its 33 plants and videotaped every plant job for detailed analysis. That tape was then run through special software that analyzes the motions involved in each job and comes back with recommendations to simplify. "That technology will be available for future plants," he noted.
Also, he said, Pilgrim's Pride already is one of the leading producers and marketers of chicken products for the nation's school lunch program. "We think that we can leverage and extend the Hillshire brands in that channel and category."
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