By Karla Paris
The largest meat company in the U.S. is expanding with its acquisition of Hillshire Brands, but it ended up paying hundreds of millions of dollars to beat the next-best offer
Put a bow on it! Of course, the bow would come after Hillshire pays a nearly $163 million breakup fee. Tyson Foods, the largest U.S. meat company, has made a binding offer in its bid to buy Hillshire Brands.
The total deal is worth roughly $8.55 billion and knocks off the other Hillshire Brands’ suitor, Pilgrim’s Pride. It was late last month when Pilgrim’s Pride and its majority owner, the Brazilian meatpacking giant JBS, offered 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, was seeking to expand its protein footprint with Hillshire's sausages and lunch meats. Tyson's offer for Hillshire, excluding debt, comes to $7.7 billion.
Winning the bid for Hillshire Brands positions Tyson Foods well in the company’s long-running effort to build a company in branded-meat products. Tyson is the biggest U.S. chicken processor and a major processor of beef and pork. Packaged meats generally carry higher profit margins than the meat Tyson sells to restaurants and food-service operations, which accounts for a big portion of the company’s sales. Hillshire’s Jimmy Dean brand dominates refrigerated breakfast sausage sales with nearly one-third of the market, according to data from market research firm IRI, and its Ball Park brand leads hot dog sales.
Tyson Foods is able to retain cost savings of nearly $300 million from the takeover of Hillshire Brands — the same as Pilgrim's Pride had expected from its own takeover. Savings will come through improvements in the company’s purchasing, distribution, and general administration segments. Additionally, Tyson’s pork-processing operations will benefit from stable and consistent demand for its raw materials for use in Hillshire Brands' branded products. The company has long been attempting to expand in packaged foods to capture the extra margins from selling branded, rather than commodity, meat.