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Hillshire Snags Pinnacle Off the Shelf

NEW YORK (The Deal) -- Hillshire Brands said Monday it would acquire Blackstone Group LP-backed Pinnacle Foods Inc., marrying Jimmy Dean sausage with Aunt Jemima syrup in a deal valued at $6.6 billion.

Terms of the deal call for Chicago-based Hillshire to pay $18 in cash and 0.5 shares of its common stock for each share of Pinnacle for total consideration of $36.02 per share, a premium of 18% over Pinnacle's Friday close and 80% above the target's March 2013 initial public offering price. Post-deal Pinnacle shareholders, including majority-owner Blackstone, would own about one-third of the combination.

The agreement values Pinnacle's equity at about $4.23 billion, with Hillshire also set to assume debt as part of the combination. The deal is valued at about 9.6 times adjusted Ebitda, according to the companies.

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Parsippany, N.J.-based Pinnacle is the producer of food brands including Duncan Hines, Vlasic, Wish-Bone, Birds Eye and Hungry-Man as well as Aunt Jemima frozen breakfasts and Celeste pizza. Hillshire, which makes Ball Park hotdogs, Sara Lee frozen bakery items in addition to Jimmy Dean sausage, said the combination would create a $6 billion-sales food giant with an ample presence on supermarket shelves.

"The new Hillshire Brands will have a strengthened position in frozen foods, new opportunities in the center store for our brands and in refrigerated for Pinnacle Foods' brands," Hillshire CEO Sean Connolly said in a statement. "We believe our increased scale combined with a more diversified portfolio will deliver strong, consistent cash flows."

Connolly said that the increased cash flow would allow the combined company to "continue to invest in our brands, enhance our portfolio, pursue value accretive M&A and deliver significant long-term value to our shareholders."

Hillshire expects to be able to extract about $140 million in annual cost synergies within three years of closing, and said it is also receiving Pinnacle tax assets with an estimated present value of about $390 million in the deal.

Hillshire has secured committed financing from Goldman, Sachs & Co.

Blackstone acquired Pinnacle in 2007 for nearly $2.2 billion, still owning 51% after the company's 2013 IPO. The firm has entered into a voting agreement to back the transaction with Hillshire, and is expected to name a director to Hillshire's board post-deal.

A Goldman team including Richard Peacock and Matthew Gibson and Centerview Partners LLC served as financial advisers to Hillshire,

Centerview Partners LLC and Goldman are serving as financial advisers to Hillshire, with Skadden, Arps, Slate, Meagher & Flom LLP providing legal counsel. Pinnacle was advised by Bank of America Merrill Lynch, Blackstone Advisory Partners and Simpson Thacher & Bartlett LLP.

Ropes & Gray LLP's Jane Goldstein led a tean representing Goldman.

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