Hillshire Brands has struck an agreement to buy fellow US food group Pinnacle Foods in a cash-and-shares deal worth US$6.6bn.
The acquisition, announced today (12 May), will, if finalised, bring together brands including Hillshire’s Jimmy Dean meats and Sara Lee, as well as Pinnacle’s Duncan Hines baking mixes and Wish-Bone salad dressings, under one roof.
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Hillshire claimed the combination of the two companies’ brand portfolios would give it a roster of “ten number one or number two brands”.
It said the enlarged business would have an “increased scale and presence in frozen, centre store and refrigerated” aisles.
Hillshire, formed when the former Sara Lee Corp. spun off its tea and coffee business in 2012, will pay $18.00 in cash and 0.50 shares of its common stock. The Hillshire ratio was based on the ten-day average closing price of the company’s shares as of Friday, implying the company will pay $36.02 a share for Pinnacle.
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The cash and shares elements add up to Hillshire paying around $4.3bn for Pinnacle. The enterprise value of the deal, including Pinnacle’s debt, is around $6.6bn, Hillshire said.
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By GlobalDataIt said the transaction is “expected to be immediately accretive to earnings”. It forecast “annual earnings per share accretion” of over 15%.
Hillshire expects the combined company to achieve an estimated $140m in annual cost “synergies” by the end of the third year after the deal was closed. The savings would be “primarily derived from supply chain enhancements and the consolidation of overhead expenses”, Hillshire said.
Sean Connolly, Hillshire president and CEO, said the deal would create a “leading food company” with a “strengthened position in frozen foods, new opportunities in the centre store for our brands and in refrigerated for Pinnacle Foods’ brands”.
He added: “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.”
Pinnacle listed in the US last year after being owned since 2007 by Blackstone. The private-equity group still owns 51% of the business.
Bob Gamgort, Pinnacle’s CEO, said the sale of the business represented a “compelling transaction” for its investors.
He added: “The complementary portfolios and strategic fit of these two companies create significant value for the shareholders of both organisations.”
Click here for just-food’s analysis of the deal.
