Tyson executives discuss details of Hillshire offer

by Joel Crews
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KANSAS CITY, Mo. – When Sean Connolly took over as CEO of what would become known as Hillshire Brands Co. in 2012, he came out swinging, determined to fix underperforming business segments, increase marketing and accelerate new product innovations. About two years into the three-year plan when the mantra has been: “fix, drive, expand,” Hillshire Brands has become the acquisition target of two of the world’s biggest meat and poultry processing companies in the world.

Two days after Pilgrim’s Pride, which is majority owned by JBS SA, São Paulo, Brazil, submitted an offer to acquire Hillshire in a deal valued at $6.4 billion, Springdale, Ark.-based Tyson Foods Inc., upped the ante with its proposal, valued at $6.8 billion. The Pilgrim’s proposal was based on a cash offer of $45 per share of Hillshire stock while Tyson’s was based on an offer of $50 per share. Both offers were based on the termination of Hillshire’s plan to acquire Pinnacle Foods Group, which was announced earlier this month.

During a conference call with the media after announcing its proposal, Tyson President and CEO Donnie Smith said executives with his company began mulling such an acquisition approximately one year ago. During a planning meeting when company leaders and board members looked at how it could accelerate its growth, specifically of its Prepared Foods segment, Hillshire blipped on their collective radars. Smith declined to acknowledge that the timing of Tyson’s offer was related to the Pilgrim’s offer made two days before this one.

Smith said the performance of Hillshire under Connolly’s leadership has been impressive, including the executive team he has assembled to help the company achieve many of its goals since 2012. “We’ve been watching with great interest over the last couple of years,” he said of the performance of Connolly and Hillshire. “They’ve done a great job of achieving their target so far,” he added, “and we think there will be a great cultural fit between these businesses.”

One big opportunity for Tyson if the acquisition were to come to fruition is in the breakfast category. “It would allow Tyson to capitalize on consumer trends in this fast-growing area where we have a limited presence today,” he said. He also discussed the benefit of synergies between the two companies and their combined sales and marketing teams and distribution network. An example is in Tyson’s pork segment.

“With our pork business, we have a lot of the raw materials that we add value to in this prepared foods category,” said Smith. The proposed acquisition would allow Tyson to “optimize that en-to-end supply chain between the pork raw materials all the way to the consumer.”

When asked if the company was prepared to increase its offer in light of Hillshire Brands shares trading at higher than Tyson’s $50 per share offer and interest among other suitors, Dennis Leatherby, CFO said he wouldn’t speculate on negotiating tactics, but confirmed that Tyson is “prepared to issue equity, so we have a lot of flexibility in what we could do.”

He explained that the offer was based on the fact that Hillshire shares number approximately 125 million shares, which at the $50 per share offer, totals approximately $6.3 billion. The offer also includes assumption of approximately $500 million, he said, which totals $6.8 billion.

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