On May 27, Pilgrim’s Pride, a unit of São Paulo, Brazil-based JBS SA, offered to acquire Hillshire Brands for $45 per share. Tyson Foods, Inc., Springdale, Ark., countered with an offer of $50 per share. Pilgrim's later raised its offer to $55. Fitch said large meat processors have had to deal with surging prices for meat due to limited supplies of animals. But Hillshire's name brand recognition and significant pricing power carried by its Jimmy Dean, Hillshire Farms, and Ball Park brands could help minimize the impact of higher livestock prices.
"Meat protein companies have clearly been focused on investing and growing in branded packaged meats and value-added meat-based products," Fitch said. "Tyson has been targeting sales growth of 6 percent-8 percent, inclusive of bolt-on acquisitions, in value-added products and prepared foods. The company projects that acquiring Hillshire could double its prepared foods revenue and increase segment profitability by over 300 basis points to above 5 percent.
"Fitch anticipates a counteroffer from Tyson and believes there is a risk that bidding for the company could get irrational as both companies fight for control," the ratings agency added. "Tyson likely has more flexibility, given its strong investment grade balance sheet and willingness to use equity to fund the buyout, but JBS/Pilgrim's has a proven willingness to take risks when it comes to acquisitions."
Both offers from Pilgrim’s Pride and Tyson Foods to acquire Hillshire Brands have been unsolicited. Hillshire’s board of directors said it will enter into formal talks with both Pilgrim’s Pride and Tyson Foods.