Playing Chicken: Tyson Raises Stakes in Bid for Hillshire

The total value of Tyson’s offer for Hillshire is $6.8 billion, a premium of 35% to Hillshire stock’s closing price on May 9, the day that Hillshire made its offer for Pinnacle. Tyson’s offer includes no financing condition because the company said that it has received a fully committed bridge facility from Morgan Stanley Senior Funding and expects J.P. Morgan Securities to join the financing team in the near future.

In a letter to Hillshire’s CEO, Tyson/s CEO said:

We believe that your shareholders would welcome the opportunity to realize an immediate and significant premium for their shares, and accordingly hope to work with you to reach mutual agreement as to a proposed transaction on the basis outlined in this letter. … We believe that there is a strong strategic, financial and operational rationale for the proposed transaction. Accordingly, our proposed price reflects the considerable value we see in such a combination, providing your shareholders with a higher return on their Hillshire investment than we believe can be attained in the near term by the Company either on a standalone basis or in combination with any other food processing company.

In other words, a chicken in the hand is worth two in the yard. Or something like that.

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Both Pilgrim’s Pride and Tyson argue that Hillshire’s investors will be better served with their offers than by paying $18 in cash and 0.5 shares of Hillshire stock for Pinnacle. That is a pretty compelling argument for stockholders, but so far Hillshire’s management has kept its thoughts to itself about the Pilgrim’s Pride offer and is likely to do so regarding the offer from Tyson. Pinnacle is controlled by Blackstone Group L.P. (NYSE: BX).

From an operational point of view, as food supplies get tighter a food-processing company needs to get larger in order to make sure it can get its hands on the supplies it needs. There are not a lot of opportunities to grow organically, so acquisitions are the way to go.

Hillshire’s shares were up another 15% Thursday morning, at $51.82 in premarket trading, above the 52-week range of $30.35 to $45.52.

Tyson’s stock was up about 3%, at $41.90 in a 52-week range of $24.48 to $44.24.

Pilgrim’s Pride shares were down about 1.5%, at $25.00 in a 52-week range of $11.41 to $26.87.

Pinnacle shares were down nearly 2%, at $31.00 in a 52-week range of $23.37 to $35.67.

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