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Tyson Ready to Play Chicken Over Hillshire Brands

Stocks in this article: TSN HSH PPC PF BX GS JPM MS

NEW YORK (The Deal) -- Tyson Foods (TSN) announced Thursday that it was joining the battle to acquire the Chicago-based maker of Jimmy Dean sausage, unveiling a $6.8 billion offer for Hillshire Brands (HSH) that tops Pilgrim's Pride (PPC) proposal, launched just two days earlier.

Springdale, Ark.-based Tyson, the nation's largest meat processor, said it would buy Hillshire for $50 a share in cash, valuing the target's equity at $6.13 billion based upon its nearly 123 million shares outstanding. Pilgrim's Pride offered $45 a share on Tuesday, implying an equity value of about $5.54 million.

Tyson's offer adds up to about $6.8 billion, the company said, which is $400 million more than Pilgrim's Pride $6.4 billion proposal. Tyson's offer is valued at 13.4 times Hillshire's trailing Ebitda versus the 12.5 times that Pilgrim's Pride is looking at.

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Investors appear to expect a bidding war, sending Hillshire's shares up nearly 16%, to $51.90, on Thursday morning.

Both Tyson and Pilgrim's Pride's offers are contingent on Hillshire canceling its pending agreement to buy Parsippany, N.J.-based Pinnacle Foods (PF) from Blackstone Group (BX) for $6.6 billion.

Tyson's $50 per share offer represents a 35% premium over the target's closing price of $36.95 on May 9, before Hillshire struck a deal to buy Pinnacle.

Hillshire would be on the hook for a $163 million termination fee if it backs out of the Pinnacle Foods deal.

After chicken producing powerhouse Pilgrim's Pride unveiled its takeover offer for Hillshire on May 27, the latter defended its agreement to acquire Pinnacle and said it would "thoroughly review" Pilgrim's offer.

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