Losing food fight doesn’t dim Pilgrim’s Pride

GREELEY –Pilgrim’s Pride Corp. (Nasdaq: PPC) lost its bid to acquire The Hillshire Brands Co. (NYSE: HSH), but its appetite for acquisitions signals the company’s growing return to profitability following its Chapter 11 bankruptcy in 2009, agribusiness analysts say.

Tyson Foods Inc. (NYSE: TSN) outbid the Greeley-based chicken processor to acquire Hillshire earlier this month. Springdale, Ark.,-based Tyson made a $63-per-share offer for Hillshire in a deal valued at $8.55 billion.

The offer topped Pilgrim’s Pride’s previous $55-per-share offer to buy Chicago-based Hillshire, which makes Jimmy Dean sausage and Ball Park hot dogs. Pilgrim’s Pride valued its deal at $7.7 billion.

Pilgrim’s Pride shares dropped 7 percent from $26.21 to $24.51 on the bid announced by Tyson on June 9. Tyson shares sank 7 percent to close at $37.50, while Hillshire shares rose 5.3 percent to $62.06.

Pilgrim’s withdrawal ended a bidding battle between the two chicken giants that began in May. Tyson’s acquisition is months away from being finalized and is predicated on Hillshire dropping its own bid to acquire Pinnacle Foods Inc., the Parsippany, N.J.-based maker of Vlasic pickles and Duncan Hines products, among other brands. If that doesn’t occur, Hillshire could be back in play again. But whether Pilgrim’s Pride would take another run at the well-known food company isn’t clear.

Brazilian meatpacker JBS S.A. (Bovespa: JBSS3), which has made numerous acquisitions, owns 75 percent of Pilgrim’s Pride shares. JBS, which also operates a beef processing plant in Greeley, absorbed Pilgrim’s Pride in 2010 after it filed for Chapter 11 bankruptcy protection in January 2009 during the economic recession.

Pilgrim’s Pride chief executive Bill Lovette said in May that his company was exploring mergers and acquisitions after reporting first-quarter earnings of $98.1 million, almost doubling its earnings of $54.6 million during the same period a year earlier. The company also has lowered plant costs and has said it believes the export chicken market will see record growth again this year.

Pilgrim’s Pride’s desire for mergers and acquisitions indicates its continued recovery from the economic recession, said Stephen Koontz, Colorado State University associate professor and extension economist.

“We’ve got companies that have money, they’re looking ahead, they’re making acquisitions that make long-term sense,” Koontz said. “We haven’t had that in a while.”

Pilgrim’s Pride had sought a union with Hillshire to gain improved exposure in retail markets, which typically see higher margins than does chicken processing alone.

“If you go back and look at the companies who have done commodity stuff and then also had branded products, the branded stuff does pretty well in the long term,” he said. “It’s not surprising that Tyson or Pilgrim’s Pride would go after such a good brand name as Hillshire.”

Dan Vaught, senior economist for Doane Advisory Services, said the acquisition would add to Tyson’s brand portfolio if it goes forward. Pilgrim’s Pride’s ineffective bid does not help the company, but it offers further evidence that the company has rebounded with backing from JBS since its bankruptcy filing.

Vaught believes Pilgrim’s Pride will seek additional mergers and acquisitions despite its unsuccessful bid for Hillshire.

“This whole thing is partly driven by margins,” he said, “in the sense that if you have brand-name products, you can really improve your margins, whereas the processing side of the industry, whether it’s chicken, cattle or hogs, the margins are really pretty thin.”

A JBS spokesman did not return a phone message seeking comment about the company’s future acquisition plans. Pilgrim’s Pride employs about 35,700 people and operates chicken-processing plants and prepared-foods facilities in 12 U.S. states, Puerto Rico and Mexico. Pilgrim’s Pride earned $550 million in 2013 versus $174 million in 2012. It posted $8.4 billion in net sales in 2013 compared with $8.1 billion in 2012.  

Hillshire employs 9,000 people. The company earned $845 million and generated about $4 billion in sales in fiscal 2013.

“As a disciplined acquirer, we determined that it was in the best interests of our shareholders not to increase our proposed price of $55 per share in cash,” Lovette said in a statement earlier this month.

The Hillshire acquisition would represent a defining moment for Tyson, propelling the company to No. 1 in retail sales of prepared foods, according to Tyson.

“Our strategy has been to grow our prepared-foods business, and it has been our aspiration to be a leader in retail prepared foods just as we are in chicken,” Tyson CEO Donnie Smith said in a separate statement earlier this month.

The offers by Tyson and Pilgrim’s Pride follow Hillshire’s attempt to acquire Pinnacle Foods Inc. (NYSE: PF) for $18 per share. Pinnacle shares rose 1.4 percent to close at $32 after Tyson announced its offer.

Tyson conditioned its offer on Hillshire dropping its agreement to buy Pinnacle. Tyson’s offer will remain in place until Dec. 12, the termination date of the agreement between Hillshire and Pinnacle.

Hillshire confirmed that it received the offer, but noted that Tyson’s bid did not change its board of directors’ recommendation to buy Pinnacle for $6.6 billion. Hillshire added that it did not have the right to end its agreement to buy Pinnacle.

“There can be no assurance that any transaction will result from the Tyson Foods offer,” the company said in a statement.

Steve Lynn can be reached at 970-232-3147, 303-630-1968 or slynn@bizwestmedia.com. Follow him on Twitter at @stevelynnBW.

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