Pinnacle drops Hillshire deal, opens path for Tyson Foods’ acquisition

Pinnacle Foods announced Monday (June 30) it has exercised its right to terminate the merger agreement with Hillshire Brands, originally announced in May. That move now clears the way for the $8.55 billion acquisition of Hillshire by Tyson Foods.

Under the terms of the merger agreement, Pinnacle is entitled to receive a cash payment from Hillshire Brands of $163 million as a result of this termination. Pinnacle indicated that one-time fees and expenses associated with the merger agreement, including external advisors and employee incentives, are expected to total approximately $25 million.

Tyson Foods has said it is prepared to cover the costs of the termination fees associated with the Pinnacle deal.

Pinnacle noted in a release that it expects to pay minimal cash taxes on the payment from Hillshire. The company plans to use the net cash proceeds to reduce debt and, as a result, expects net interest expense for the year to fall slightly below the $100 million previously disclosed.  The interest savings are expected to be reinvested in the business in 2014. 

On a pro forma adjusted basis, which excludes the merger-related payment, fees and expenses and other items affecting comparability, Pinnacle reaffirmed its guidance for diluted earnings per share for 2014 in the range of $1.70 to $1.75. 

"We're excited to continue delivering long-term value for our shareholders through our strategy of Reinvigorating Iconic Brands. We continue to manage well through the difficult industry and category environment that we have discussed previously,” said, Pinnacle Foods CEO Bob Gamgort.

Tyson’s blockbuster $8.55 billion bid for Hillshire Brands stipulated that the hot dog and sausage maker must first abandon its plans to buy Pinnacle for $4.23 billon. Tyson’s offer of $63 a share to Hillshire investors was met with mixed sentiment on Wall Street. 

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Several analysts say Tyson overbid at $63 per share for Hillshire Brands at the expense of existing Tyson investors, and that the 70% per-share premium could take years for Tyson to recover.

Tyson shares closed Monday at $37.54, up 10 cents on the news. Shares were trading in the mid 40s in early June, just ahead of the announcement to buy Hillshire Brands. Shares of Hillshire Brand closed Monday  at $62.30, up 30 cents.

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