Food companies play merger musical chairs

Another in the latest series of food industry mergers and attempted mergers was announced this week, as Chicago-based Hillshire Brands (HSH) said it was following up on earlier plans and acquiring Pinnacle Foods (PF).

The deal, reportedly worth $4.23 billion, brings together two food companies with very strong and compatible brand portfolios. Parsippany, New Jersey-based Pinnacle is the parent company for Duncan Hines baking mixes, Vlasic pickles, Log Cabin table syrup and Birds Eye frozen foods and vegetables -- while Hillshire Brands is known for its luncheon meats, Jimmy Dean sausages and Ball Park frankfurters.

"The acquisition creates a leading branded food company with enhanced scale, reach, and capabilities while providing margin expansion and strong EPS accretion," Sean Connolly, Hillshire Brands president and CEO, said earlier this month in a press statement. "The complementary portfolios and strategic fit of these two companies create significant value for the shareholders of both organizations."

The deal is expected to close in September, subject to the standard closing conditions as well as shareholder and regulatory approvals.

But that deal coincides with a recent, unsolicted bid by Colorado-based poultry producer Pilgrim's Pride to acquire Hillshire Brands in a transaction valued at $6.4 billion. In a press statement, Pilgrim's Pride said its all-cash proposal would provide Hillshire shareholders "with a substantially superior alternative" to Hillshire's pending acquisition of Pinnacle.

"We have long respected the Hillshire business and we are confident that Hillshire's Board and shareholders will find our all-cash premium proposal to be superior to the pending acquisition of Pinnacle," Pilgrim's CEO Bill Lovette said on Tuesday.

For its part, Hillshire responded diplomatically to Pilgrim's wooing, saying while its board would "thoroughly review the Pilgrim's Pride proposal," the company still believes in "the strategic merits and value creation potential" that would come from the Hillshire Brands merger with Pinnacle.

A marriage to Pilgrim's would have obvious benefits for Hillshire. As the world's second-largest chicken producer, Pilgrim's Pride has global reach -- with operations in the U.S., Mexico and Puerto Rico. It is also part of the Brazilian multinational food giant JBS.

Analysts, meanwhile, appear to be ambivalent towards a Hillshire-Pinnacle deal. "We think joining two protein companies makes a lot more sense than marrying a meat company with one that has a focus on frozen vegetables," Ken Goldman, with JPMorgan Chase & Co.,wrote Tuesday in a research note quoted by Crain's Chicago Business.

And The Chicago Sun Times says Vicki Bryan, with the independent research group Gimme Credit, wrote in a note to investors that key Hillshire shareholders are against the company's takeover of Pinnacle, which Bryan describe as a "chronic laggard."