Pilgrim's Pride Ups the Ante for Hillshire Brands

The pot is getting rich for packaged meat deal, but it looks like soon everyone will be putting their cards on the table

Jun 4, 2014 at 10:15AM


I see your $55-a-share bid and raise you $5 a share. Pilgrim's Pride (NASDAQ:PPC) just raised the pot for packaged meats and desserts specialist Hillshire Brands (NYSE:HSH) to $6.7 billion, in a high-stakes, winner-takes-all poker game being played out against Tyson Foods (NYSE:TSN), which bid $6.1 billion. 

Since Tyson previously trumped Pilgrim's original $45-a-share offer for the owner of Jimmy Dean sausage and Sara Lee desserts, it now comes down to who will call whose bluff. Regardless of who blinks first, it's clear a side deal for Hillshire to acquire Pinnacle Foods (NYSE:PF), a transaction that originally set the poker match in motion, now seems likely to fold, as both Pilgrim's and Tyson require the packaged consumer products company to scuttle the offer.

Hillshire Brands has a portfolio of products that tend to be the leading brands in their respective categories. For example, Jimmy Dean breakfast sausages have the top market share in the space, as does Ball Park franks, State Fair corn dogs, and Aidell's super premium sausages, helping Hillshire generate some $4 billion in revenue in 2013. While retail sales were up 3.2% in the third quarter as higher prices were able to offset falling volume, segment operating income surged 20% year over year, explaining why both Pilgrim's and Tyson were eager to go all-in on acquisition.

Branded goods like those stocked by Hillshire carry higher margins, a particularly attractive option for the meat processors who've faced rising costs from commodities, feed, and the animals themselves. The pork market, for example, has literally been decimated, as one in 10 piglets has succumbed to porcine epidemic diarrhea virus, or PEDv. Cattle herds are at levels they haven't been seen since 1951, causing beef prices to surge to record highs. 

Brazilian meat processor JBS (NASDAQOTH:JBSAY), which bought 75% of Pilgrim's Pride in 2009, has been making acquisitions to further integrate its meats into the U.S. market and sees the Hillshire takeover as a means of padding its profits in a way that simply selling private-label meat products to supermarkets, a typically low-margin business, can't do.

For its part, Tyson no doubt wants to pad its own prepared foods business. It is the top poultry producer with a 21% market share, ahead of Pilgrim's second place 18% share; it is the No. 1 beef producer at a 23% stake in the market, compared with JBS at 21%; and it is second in pork production behind Smithfield Foods, itself a recent acquisition target.

Prepared foods, however, account for only 10% of revenues but just 7% of its operating income, so a profitable portfolio of branded products would provide a needed boost to the business.

A deal with either Pilgrim's or Tyson makes more sense strategically than Hillshire's $4.3 billion bid for Pinnacle, the owner of brands like Vlasic and Bird's Eye, despite its CEO's comments about how complementary meat and vegetables are. But with Pilgrim's now offering as much as Hillshire's market value is worth, a 49% premium to where the stock was trading before the bidding war began, it is now becoming a richly valued target and likely bumping up against a ceiling here.

Tyson may increase the bid slightly, or otherwise sweeten the pot, but I don't think we'll see any more big bets here, and the meat processor could just as easily fold its hand.

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour. (That's almost as much as the average American makes in a year!) And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click here to discover more about this industry-leading stock, and join Buffett in his quest for a veritable landslide of profits!

Rich Duprey and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was rated #1 in the world by The Wall Street Journal)* and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations moments ago. Together, they've tripled the stock market's return over 12+ years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

Compare Brokers