News Feature | May 28, 2014

Pilgrim's Pride, Hillshire Brands, And Pinnacle Foods Fuel Meat-Merger Frenzy

By Karla Paris

Pilgrim’s Pride Food Manufacturing

Just two weeks after an already enormous deal for Pinnacle Foods, another offer from the world’s second-largest chicken processor drops on the table for Hillshire Brands

Two weeks after the maker of Hillshire lunch meats and Jimmy Dean Sausages offered to buy Pinnacle Foods in a $4.3 billion deal, Pilgrim's Pride is turning the tables.  Pilgrim’s Pride and its majority owner, the Brazilian meatpacking giant JBS is offering to buy Hillshire Brands in an all-cash deal valued at $6.4 billion, including the assumption of debt.   Pilgrim’s Pride, the world's second-largest chicken processor, seeks to expand its protein footprint with Hillshire's sausages and lunch meats.

A major component of Pilgrim’s unsolicited proposal requires Hillshire to drop its Pinnacle bid, which it is unclear if Hillshire would even entertain at this point. Hillshire Brands released a statement in regards to the offer noting that, “Our company continues to strongly believe in the potential provided by the proposed transaction with Pinnacle Foods.  Consistent with its fiduciary duties and in consultation with its independent financial and legal advisors, Hillshire Brands' Board will thoroughly review the Pilgrim's Pride proposal.”

A serious shortage of meat across the globe has fueled a frenzy of mergers and acquisitions in the meat and poultry segments.  Like consumers, meat processors have felt the pinch of higher meat prices.  The Porcine Epidemic Diarrhea (PED) virus affecting the nation’s pork supply has killed more than 4 million pigs, according to the National Pork Producers Council, and has driven pork prices to its highest prices since early 2010. The current meat-merger frenzy is something that has not been seen since 2005 when a buying spree transformed JBS into the world's biggest beef producer with more than 14 major acquisitions in six years, including U.S. rivals Swift, Smithfield Beef, and Pilgrim's Pride.

In late 2013, China's WH Group became the world's biggest pork company after buying U.S.-based Smithfield Foods in Sept 2013.  The company’s brands offer packaged meat and fresh pork products in many parts of the world.  In its respective regions, many of the Company’s brands, such as Shuanghui, Smithfield, John Morrell, Farmland, and Eckrich are trusted household names.

Even the world’s largest-processor of chicken products, Tyson Foods, is falling into the merger frenzy. The company is nearing a purchase of Michael Foods Group in a deal that would combine one of the world's largest chicken processors with a large distributor of egg and dairy products.

With the current battle for Hillshire Brands, Pilgrim's Pride says the deal could close in Q3 of 2014 should Hillshire call off the deal with Pinnacle. However, a termination fee of $163 million would be required to end the deal.