Pilgrim's Pride Offers to Acquire Hillshire Brands - Analyst Blog

Meat products company Pilgrim's Pride Corporation PPC has recently offered to acquire its peer, The Hillshire Brands Company HSH. The transaction offer is valued at $6.4 billion, translating to $45.00 per share.

The proposition comes as a better alternative to Hillshire's plan of acquiring another peer Pinnacle Foods Inc. PF, for an agreed consideration of $6.6 billion. According to the deal, Hillshire will pay $18.00 in cash and 0.50 share of Hillshire Brands common stock for each share of Pinnacle.

The offer from Pilgrim's Pride reflects a 25% premium to the weighted average price of Hillshire following the Pinnacle Foods acquisition announcement. The offer price also represents 12.5x Hillshire's trailing adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).

If consummated, the acquisition will create a combined entity of $12.4 billion revenues and $1.4 billion EBITDA in the last 12 months. The entity will have many known brands to its credit including Wing Dings, Ball Park, Pierce, Jimmy Dean, Hillshire Farm and State Fair, which hold high ranks in their respected markets. Pilgrim's Pride also intends to make Chicago a centre for its North American operations, post the acquisition.

Pilgrim's Pride plans to fund the takeover through its existing liquidity and new third-party financing. The company has significant cash and cash equivalents of $552 million, which will aid in funding the acquisition.  

With growth in the meat products industry, this deal, if closed, may prove immensely beneficial for Pilgrim's Pride. It will empower the company to attain higher market shares and a strong foothold in the industry. With a market capitalization of $6.6 billion, Pilgrim's Pride sports a Zacks Rank #1 (Strong Buy). Another stock, Sanderson Farms, Inc. SAFM, with a Zacks Rank #1, can also be considered for investment.