NEW YORK (TheStreet) -- In December, when shares of Pinnacle Foods (PF) traded at around $26, investors were advised to nibble on the stock. Since that recommendation, the shares have soared close to 40% to Friday's close of $30.45. Shares are up 32% year to date.
Although the entire packaged-food industry was struggling with weak volume and compressing margins, I was impressed with Pinacle's focus on expenses to achieve the sort of margins necessary to increase earnings. Not to mention, Pinnacle had just picked off salad dressing brand Wish-Bone from Unilever (UN) for $580 million, a deal that I projected would increase Pinnacle's fair value to $35.
On Monday, Hillshire Brands (HSH) agreed as it announced a $4.23 billion cash-and-stock deal for Pinnacle, whose brands include Duncan Hines, Bird's Eye, Hungry Man and Aunt Jemima. The deal represents a 18% premium to Pinnacle's Friday closing price.
For Hillshire, which owns popular brands such as Jimmy Dean sausage and Ball Park franks, the company is getting an expanded portfolio in frozen foods. The combined company, which will keep the Hillshire name, is expected to have roughly $6.6 billion in annual sales. Hillshire President and CEO Sean Connolly will serve as its president and CEO.
With Pinnacle's expected double-digit earnings growth this year and in 2015, this is great deal for both companies. The combined entity is expected to save $140 million annually by 2017. As of this writing, shares of the companies took opposite turns. Pinnacle traded up more than 17% to $35.75, while Hillshire's stock gave up almost 2% to $36.30. >>Read More: Apple's Next Major Acquisition After Beats >>Read More: Puma Wins Big at NFL Draft With Jadeveon Clowney At the time of publication, the author held no position in any of the stocks mentioned. Follow @Richard_WSPB
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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