Consumer Products

Food Giant Created in $6.6 Billion Deal

Source: Thinkstock
The Hillshire Brands Co. (NYSE: HSH) woke up investors this Monday morning with the announcement that it has reached a definitive agreement to acquire Pinnacle Foods Inc. (NYSE: PF) for a total value of about $6.6 billion. Hillshire will pay $18 in cash and 0.5 shares of Hillshire stock for each share of Pinnacle’s common stock. That works out to approximately $36.00 a share, representing a premium of about 18%, based on Pinnacle’s closing price last Friday.

The Blackstone Group L.P. (NYSE: BX) holds some 51% of Pinnacle stock through various affiliates, which have agreed to vote in favor of the transaction. The boards of directors of both companies have approved the deal. Blackstone will receive a Hillshire board seat upon the transaction’s close.

Pinnacle held its initial public offering (IPO) in March 2013, selling 29 million shares at an IPO price of $20. The company makes a variety of food brands such as Vlasic Pickles, Celeste Frozen Pizza and Van de Kamp fish sticks, among other products. At the time of its IPO, the company said it expected to pay a dividend yield of 3.8%. The reality is that Pinnacle’s dividend yield as of last Friday was 2.8%.

Hillshire’s CEO said:

The new Hillshire Brands will have a strengthened position in frozen foods, new opportunities in the center store for our brands and in refrigerated for Pinnacle Foods’ brands. We believe our increased scale combined with a more diversified portfolio will deliver strong, consistent cash flows. This will enable us to continue to invest in our brands, enhance our portfolio, pursue value accretive M&A and deliver significant long-term value to our shareholders.

The transaction is expected to close by September and Hillshire said it will continue to pay its current annual dividend of $0.70. Pinnacle’s current dividend is $0.84 and will of course no longer be paid. Hillshire expects to achieve annual cost savings of $140 million through a combination of improvements in the supply chain, the consolidation of overhead expenses and “annual EPS accretion in excess of 15%.” In other words, Hillshire gets to keep the Pinnacle dividend payments.

Hillshire also gets to assume Pinnacle’s $2.48 billion in long-term debt, a total that has risen from around $2.1 billion at the time of Pinnacle’s IPO. Hillshire’s own long-term debt load was just $840 million at the end of December 2013.

Pinnacle’s shares were inactive early Monday morning, after closing at $30.45 Friday in a 52-week range of $23.37 to $30.72. That is the post-IPO high as well, so Pinnacle shareholders got a pretty good deal.

Shares of Hillshire were up about 2.7% in premarket trading, at $37.95 in a 52-week range of $30.35 to $38.01.

READ MORE: The 10 Fastest Rising Food Prices

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