Blackstone Group-backed Pinnacle is being acquired by Hillshire for $18 in cash and 0.5 of a Hillshire share for each share of Pinnacle. The deal traded at a spread of $2.95 Thursday after closing Monday after the merger announcement at $1.41. Prior to the deal announcement, the relative value of the companies based on the deal terms translated to a spread of $6. If the merger closes at the end of August, based on the current spread, it offers an annualized return of about 30%.
The merger has no regulatory risks. The key concern is that Hillshire is itself a takeover target and risk arbitrageurs playing the deal could be caught short Hillshire if a spoiler bid surfaces.
Thursday, Citadel Advisors LLC filed on a 5% stake in Hillshire. That filing came under form 13G, not a 13D, which could lean against the notion that activists could agitate against the Hillshire tie-up with Pinnacle. But the Citadel filing underscores the presence of potentially activist investors in a Hillshire that could be present on the assumption that the buyer in the Pinnacle merger was an expected target. Citadel declined to comment on its filing.
Other Hillshire shareholders include York Capital Management LLC, with 3.7%, , Gamco with 3.7%, Wellington Management Co., with 3.6%, DE Shaw & Co., 2%, Carlson Capital LP, with 1.2%, Eminence Capital LLC, with 1.1%.