Tyson will acquire all outstanding shares of Hillshire Brands for $63 per share. The all-cash transaction is valued at approximately $8.55 billion.
"Fitch views the pending acquisition of Hillshire as in line with Tyson's strategy of expanding in prepared foods and value-added products," according to Fitch analysts. "Pro forma for the acquisition, prepared foods will increase to 18 percent and 20 percent of Tyson's revenue and operating income, respectively, from 9 percent and 5 percent during the LTM [last 12 months] ended March 29, 2014."
Fitch also expects Tyson to report its fifth-consecutive year of strong operating performance. The ratings firm said that Tyson's diversification and synergies with Hillshire Brands will help the bottom line despite mixed market fundamentals.
"Fitch expects industry margins in beef to continue to be pressured by record low US cattle supply over the near term, while Porcine Epidemic Diarrhea [PED] disease across farms in the mid-west has reduced US hog supplies," Fitch analysts reported. "However, low corn and feed cost should continue to support profitability for chicken producers, result in increased hog weights, and incentivize ranchers to start rebuilding cattle herds. Protein demand should remain relatively intact over the near term."