Tyson wins Hillshire bid: 7 questions about the biggest meat fight in history

Meat acquisitions don’t get much more dramatic than this.

After a heated bidding war, Tyson Foods will buy Hillshire Brands for about $7.7 billion, beating out an offer from Pilgrim's Pride by about $1 billion. Tyson, the biggest meat company in the US, will pay $63 per share and take on the company's substantial debt load, the Springdale, Arkansas-based Tyson said in a statement. 

If you read business coverage with any regularity, you’re probably wondering why Hillshire (of sausage fame) has been dominating your daily stock updates for the past two weeks or so. The short answer: The Tyson buyout came after a complicated series of proposed mergers also involving a frozen vegetable giant and two frozen chicken rivals. When finalized, the deal is likely to be the biggest merger the US meat industry has ever seen. Now you probably have even more questions. We’re here to answer them.

What’s Hillshire Farm, again?

Hillshire Farm is a line of pork products, mainly sausage. It’s a part of Hillshire Brands, a Chicago-based meat producer that also owns popular brands including Ball Park and Jimmy Dean.

Before the Tyson deal, What other companies were involved?

In addition to Hillshire, the current struggle involves Pinnacle Foods, which owns several well-known brands including Mrs. Butterworth’s syrup, Birds Eye frozen vegetables, and Vlasic pickles. Other companies in the takeover drama: Tyson Foods and Pilgrim’s Pride, two large chicken producers.

What are the terms of the Tyson purchase?

Tyson will pay $63 per share for Hillshire and take on the company's debt, making  the deal worth about $8.55 billion in all. Pilgrim's Pride had been offering $55 per share. Tyson's winning bid is about 70 percent higher than Hillshire was valued before the bidding began. According to projections from Bloomberg, the newly-merged company will generate about $39.4 billion in annual sales and about $1.2 billion in net income. 

So, when did this whole thing start?

In mid-May, Hillshire announced a deal to buy Pinnacle in a cash and stock deal worth a little over $4 billion. Soon after, Pilgrim’s Pride made an offer to buy Hillshire for about $5.5 billion, on the condition that Hillshire drop its bid for Pinnacle. Tyson jumped into the mix last week, offering $6.1 billion in cash for Hillshire, which was not technically up for sale at the time. Pilgrim’s hit back on Monday, upping its bid to 6.7 billion.

How are investors reacting?

They weren’t wild about the Pinnacle deal, which would have required Hillshire to take on substantial debt and had the company making inroads into the increasingly unpopular world of processed food. As often happens when mergers are announced, Hillshire's stock fell on the news while Pinnacle's rose. But Hillshire shares have soared more than 60 percent since then as Tyson and Pilgrim have traded offers. The reason: the latest bid from Pilgrim valuedHillshire stock nearly 49 percent higher than before the offers started coming in. 

“It makes more sense to combine two meat-focused companies than a company focused on meat and one focused on frozen vegetables,” J.P. Morgan analyst Ken Goldman told Reuters last week, echoing the sentiments of many analysts.

Wait, what about Pinnacle?

Good question! Though Hillshire shareholders would be thrilled to be rid of it, killing the deal won’t be easy, according to the company. “Hillshire Brands does not have the right to terminate the Pinnacle Foods merger agreement on the basis of either of these proposals or enter into an alternative acquisition agreement with either of these parties prior to termination,” a Tuesday press release announcing the Pilgrim’s and Tyson talks read.

But Hillshire can get out of it, noted Michael J. De La Mercer at the New York Times. The board of directors would just have to get investors to vote against the merger, and if they do so, it would release Hillshire from the deal and leave it free to accept one of the takeover bids. Pinnacle would be paid a $163 million breakup fee for its trouble.

Last thing: Why were these chicken companies pursuing Hillshire so aggressively?

Hillshire Brands has been an attractive acquisition prospect for larger companies since it was created as a result of Sara Lee splitting into two companies in 2012. For Tyson,  the deal will mean more established name brands and diversification into the packaged meat industry beyond chicken and other fresh meat products.

If a deal goes through, it will be the biggest meat industry merger ever, according to Dealogic, a data company.