Companies and Brands
Did Tyson Destroy Itself in the Hillshire Buyout?
Published:
Last Updated:
Tyson Foods Inc. (NYSE: TSN) may have destroyed its own prospects for new investors in its acquisition of Hillshire Brands Co. (NYSE: HSH). Warren Buffett has been known to pay up for a great enterprise, but this is apparently an acquisition that was just too expensive for Credit Suisse to stomach.
Credit Suisse’s Robert Moskow has downgraded Tyson to Underperform from Neutral. The firm also downgraded its price target to $35 from $40 in the call. The rational for this downgrade is that the price paid just does not make sense to most investors.
Moskow further warned of a transaction risk as well. He noted that if the stock market continues to react negatively to the deal, or if fundamentals decline in the core business, Tyson may need to issue even more stock to complete the transaction. Tyson shares fell 6% on Monday, followed by another 4% drop as of mid-afternoon on Tuesday.
Tuesday’s report identifies the reason that Tyson is paying so much as being that management views this as a once-in-a-lifetime transformational deal that can mute the volatility in its core business. Management also believes that this will accelerate Tyson’s growth rate, improve its value-added mix, create synergies and cost savings and ultimately allow Tyson’s stock to trade at a higher valuation multiple over time.
The analyst said:
We certainly see how Tyson’s offer to acquire Hillshire Brands at a 70% premium can create value for investors if they have a seven, ten, or twenty-year investment horizon. Unfortunately, most investors don’t have the luxury of investing with such a long-term view. We believe Tyson stock will be dead money at best for the next 12 months as it copes with the hangover of paying such a big price including an issuance of perhaps $1.6 billion of equity.
Moskow identified four major concerns:
Tyson shares were down 4.1% at $35.95 in mid-afternoon trading on Tuesday. Its 52-week range is $24.74 to $44.24, and the consensus price target from analysts is $44.50. Needless to say, Credit Suisse’s $35 price target is among the worst price targets that analysts have.
ALSO READ: The 10 Fastest Rising Food Prices
Want retirement to come a few years earlier than you’d planned? Or are you ready to retire now, but want an extra set of eyes on your finances?
Now you can speak with up to 3 financial experts in your area for FREE. By simply clicking here you can begin to match with financial professionals who can help you build your plan to retire early. And the best part? The first conversation with them is free.
Click here to match with up to 3 financial pros who would be excited to help you make financial decisions.
Have questions about retirement or personal finance? Email us at [email protected]!
By emailing your questions to 24/7 Wall St., you agree to have them published anonymously on a673b.bigscoots-temp.com.
By submitting your story, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.