NEW YORK (TheStreet) -- Shares of Pinnacle Foods Inc. (PF - Get Report) are soaring, up 20.33% to $36.64, in pre-market trade after it was announced that Hillshire Brands (HSH) will acquire all outstanding shares of the company in a cash and stock transaction for about $4.3 billion.
Hillshire Brands stock is up 2.96% to $38.05 in pre-market trade.
Under the terms of the agreement, each share of Pinnacle Foods common stock will be exchanged for $18.00 in cash and 0.50 shares of Hillshire Brands common stock.
The total enterprise value of the transaction is approximately $6.6 billion, including Pinnacle Foods' outstanding net debt, which reflects an adjusted EBITDA multiple of 9.6x.
The fixed exchange ratio of 0.50 shares of Hillshire Brands common stock was determined based on the ten day average closing price of Hillshire Brands as of May 9, 2014. The implied purchase price based on this average is $36.02 per share and represents an 18% premium to the price of Pinnacle Foods' common stock based on the closing price on May 9, 2014.
In conjunction with the agreement, certain affiliates of Blackstone Group (BX - Get Report), which collectively hold approximately 51% of Pinnacle Foods' outstanding common stock, have entered into a voting agreement and, subject to its terms and conditions, agreed to vote their shares in favor of the transaction.
TheStreet Ratings team rates PINNACLE FOODS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate PINNACLE FOODS INC (PF) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth and revenue growth. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, disappointing return on equity and poor profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here.
- PINNACLE FOODS INC has improved earnings per share by 23.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, PINNACLE FOODS INC increased its bottom line by earning $0.77 versus $0.47 in the prior year. This year, the market expects an improvement in earnings ($1.74 versus $0.77).
- The net income growth from the same quarter one year ago has exceeded that of the Food Products industry average, but is less than that of the S&P 500. The net income increased by 27.6% when compared to the same quarter one year prior, rising from $43.66 million to $55.71 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Food Products industry and the overall market, PINNACLE FOODS INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- The gross profit margin for PINNACLE FOODS INC is currently lower than what is desirable, coming in at 31.04%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 7.85% trails that of the industry average.
- You can view the full analysis from the report here: PF Ratings Report