Hillshire Devours Pinnacle Foods in $4.3 Billion Deal

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.

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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%.

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