Are There Gains to Be Had Beyond the Hillshire Brands Food Fight?

Hillshire Brands has seen remarkable stock gains due to significant M&A interest, but in looking at the space, there are several other food-processing companies that should catch your eye.

Jun 5, 2014 at 5:30PM

In the last week, two different companies went public with bids to acquire Hillshire Brands (NYSE: HSH) in offers that can only be to create operational synergies, boost manufacturing capacity, and increase supermarket shelf space. While the focus is on Hillshire and what company will have the winning bid, there are several other food companies that might also see merger and acquisition interest. These potential acquisition candidates include such names as WhiteWave Foods (NYSE: WWAV), Dean Foods (NYSE: DF), and Sanderson Farms, (NASDAQ: SAFM), all of which represent interesting prospects for different reasons. 

What's so interesting about Hillshire?
If we combine both bids for Hillshire Brands, the company has seen its stock soar 45% in the last week alone. This is a company that owns brands Jimmy Dean, Ball Park, Hillshire Farm, and Sara Lee, among others and is a key leader in meat processing.

Hillshire is not a company that's expected to grow organically to a large degree, as analysts expect revenue to increase 2.5% this year to $4 billion. Therefore, the upside in acquiring Hillshire must lie in synergies, and being able to boost its current operating margin of 9.4%.

The world's largest meatpacker and chicken producer are the two companies attempting to acquire Hillshire -- companies that already have large manufacturing scale. With 9,000 employees, Hillshire might be seen as a company that can be trimmed, or where existing factories can be made leaner and the supply chain made more efficient.

Are more acquisitions likely?
Regardless of the reason in acquiring Hillshire, it's obvious that more than one company sees value, and that bids are coming in quickly. This creates an interesting dilemma where large food companies with inside looks at the industry might seek to be more acquisitive, and given the speed of bids, such offers could happen fast.

One of the confusing facts about Hillshire is that it did nothing to gain an organic edge. Organic foods is a one key area of the industry where growth exists. Therefore, WhiteWave Foods might be an attractive opportunity.

The company focuses on using plant-based food and drinks, such as Silk and Alpro. The company is also a leader in coffee creamers and half-and-half. Finally, its Horizon brand is a leader in the organic milk category. Therefore, it's a prominent dairy company, and because of its healthy initiatives, one that's expected to grow revenue by 32% and 8% in the next two years, respectively.

Two more possible acquisitions
Like WhiteWave, Dean Foods is a leader in dairy, although far more diversified with more than 50 local and regional brands. With just 3% revenue growth expected this year. Dean Foods is not going to blow anyone away with its growth, but the company is fairly valued at 15 times next year's earnings, and with an enormous manufacturing presence and 19,000 employees, there is a lot of consolidation that could occur to boost its 1.5% operating margin. With dairy being another top non-cyclical good, it could be the next industry to be sought by acquirers.

Lastly, Sanderson Farms is a poultry processing company that produces 100% all-natural chicken, and would likely be attractive as food companies seek to combine meat with chicken. With annual revenue of $2.67 billion, it's far smaller than many of the other noted companies, but with three consecutive years of increased operating margins, the company could be an attractive target.

Final thoughts
With all things considered, there's nothing exciting about this space, and that includes Hillshire Brands. In fact, it's hard to find a distinguishing characteristic that would explain why the merger and acquisition interest has increased so drastically in the last couple months.

The food processing industry as a whole has lacked growth since the recession, as pricing competition has become more intense. Companies have downsized and have become more efficient. As a result, these acquisition attempts might very well be an attempt to gain pricing pressure, which could spark growth.

Dairy is a space that hasn't yet been sought, and when we look at WhiteWave and Dean Foods, you can't help but notice that synergies could exist, which is key in predicting or anticipating future mergers and acquisitions. Watch these two stocks most closely, but also Sanderson, based on the mere interest in the poultry space.

Will this stock be your next multi-bagger?
Give us five minutes and we'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends WhiteWave Foods. The Motley Fool owns shares of Sanderson Farms and WhiteWave Foods. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers