NEW YORK (The Deal)-- Shares of Hillshire Brands (HSH) surged more than 20% Tuesday morning after Pilgrim's Pride (PPC) revealed a $6.4 billion deal to acquire the packaged foods company, a move that it hopes will prevent the target's pending agreement to buy Pinnacle Foods (PF).
Pilgrim's, a chicken-producing powerhouse based in Greeley, Colo., disclosed Tuesday a preliminary, nonbinding proposal to acquire Hillshire for $45 per share in cash, or 12.5 times the target's trailing adjusted Ebitda as of March 29. The deal is valued at $6.4 billion, including debt, Pilgrim's said.
The offer represent's a 21.6% premium over the company's closing stock price of $37.02 on Friday. The premium works out to about 25% over the weighted average over the past 10 trading days.
Shares of Hillshire, trading on the New York Stock Exchanges as HSH, rallied about 21.6% midmorning to $45 following the announcement.
"As you are well aware, it has long been our desire to acquire [Hillshire]," Pilgrim's CEO William Lovette wrote in a publicly released letter addressed to Hillshire CEO Sean Connolley, noting that the two parties had met on Feb. 20.
Pilgrim's bid comes about two weeks after Chicago-based Hillshire agreed to purchase Parsippany, N.J.-based Pinnacle Foods from Blackstone Group (BX) for $6.6 billion. The new offer is contingent on Hillshire ending its pursuit of Pinnacle.
The Deal Pipeline reported last week that the widening spread in the Hillshire-Pinnacle deal led arbitrage investors to speculate that Hillshire was a potential takeover target. Eminence Capital has reportedly decided to vote against the deal for Pinnacle. The New York hedge fund owns approximately 1.1% of Hillshire.