Pilgrim's Pride, Hillshire Farms in takeover triangle

Pilgrim’s Pride CEO Bill Lovette made the case on May 27 for a merger with Hillshire Brands, but is his acquisition target listening?

One of the most compelling merger attempts involving poultry companies is now playing out between Pilgrim’s Pride and Hillshire Brands. It’s a three-way corporate romance (two of the companies in the triangle in the poultry business), and who knows what’s next.

Here’s the program guide as to the suitors:

• Pilgrim’s, the No. 2 ranked U.S. chicken producer, first sought Hillshire Brands (which happens to be the No. 5 U.S. turkey producer), and expressed interest in acquiring the company in early February of this year. Hillshire’s power in retail meat brands (Jimmy Dean, Hillshire Farm, Bryan Foods and more) is attractive to Pilgrim’s, which wants to bolster its branded, value-added market presence.

• Hillshire, apparently uninterested in Pilgrim’s intentions, subsequently signed an agreement to acquire Pinnacle Foods, maker of frozen vegetables, cake mixes and pickles. Pilgrim’s obviously hopes that deal goes unconsummated.

Now Pilgrim’s just barged into the agreed upon merger between those two food companies – Hillshire Brands and Pinnacle Foods – with an offer to acquire Hillshire for $45 a share in a transaction valued at $6.4 billion.

It seems that Hillshire Brands – so attractive to Pilgrim’s for its branded, protein-focused business – would prefer to enhance its own product portfolio in the retail foods sector rather than yield itself to the operational synergies contemplated by another meat company.

C’est l’amour ... But wait. Is the case for merger more compelling between two meat companies or a meat company and a maker of frozen vegetables? Analysts are saying there are more synergies between the two meat companies – Pilgrim’s and Hillshire Brands.

Wall Street welcomed the Pilgrim’s proposal, bidding up Hillshire shares after its announcement. On the other hand, the proposed merger of Hillshire-Pinnacle met with skepticism on Wall Street, which drove its stock price down earlier this month over questionable synergies between the protein company and Pinnacle’s diverse, non-meat brands.

But this three-way romance just might get more complicated before it’s over. Other meat and poultry companies might well take note of the attractiveness of Hillshire Brands for the same reasons. Analysts are speculating that companies like Tyson Foods, Sanderson Farms and Cargill might also take an interest.

WATT PoultryUSA reported that Pilgrim’s produced 138.33 million pounds of U.S. RTC chicken on a weekly basis in 2013.

No. 5-ranked Hillshire Brands Company slaughtered 402.0 million pounds of live turkeys in 2013, an increase of 44 million pounds or 12.3 percent, according to WATT PoultryUSA.

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