Tyson Ready to Play Chicken Over Hillshire Brands

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.


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.

Tyson said it has fully committed bridge financing from Morgan Stanley (MS). The company said it expects JPMorgan Securities (JMP) to join the financing shortly. Tyson said it anticipates keeping its investment-grade credit rating intact following the transaction. It is willing to issue equity if necessary.

Morgan Stanley's Steve Munger and Ben Frost, and JPMorgan's Kevin Willsey are serving as financial advisers to Tyson. A Davis Polk & Wardwell team including George Bason, Richard Truesdell and Marc Williams are providing legal advice.

A Goldman Sachs (GS) team including Richard Peacock and Matthew Gibson and Centerview Partners LLC's Blair Effron served as financial advisers to Hillshire on its agreement to buy Pinnacle.

Skadden, Arps, Slate, Meagher & Flom's Rodd Schreiber, Michael Civale, Seth Jacobson, Gregg Noel, Clifford Aronson, Joseph Yaffe, Don Frost Jr., Bruce Goldner, Kenneth Plevan and David Rievman counseled Hillshire.

Pilgrim Pride's tapped Lazard and Cravath for financial advice and Swaine & Moore LLP for legal advice in its bid.

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