This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Hillshire Devours Pinnacle Foods in $4.3 Billion Deal

Stocks in this article: PFUNHSH

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.


WATCH: More market update videos on TheStreet TV

Each share of Pinnacle's common stock will be exchanged for $18 in cash and a half share of Hillshire's common stock. The exchange places a valuation on Pinnacle stock at $36.02 per share, roughly 3% above my projected fair value in my December article. Including debt, the deal is worth $6.6 billion.

While it's not an expensive deal for Hillshire, it's a respectable premium for Pinnacle, which has operated as a public company for only about one year. Since its March 2013 IPO, the shares are up more than 26%.

Following the IPO, there were concerns about Pinnacle's long-term debt and interest expenses. But interest expenses fell 30% in the fourth quarter from a year earlier. The company has paid down well over $1 billion of debt during the past year. Proceeds of $667 million from the IPO went to pay off debt.

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.


This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,399.67 +19.26 0.12%
S&P 500 1,904.01 +17.25 0.91%
NASDAQ 4,316.0740 +57.6360 1.35%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs