Apparently, somebody sees some value in the current price of poultry producers.
Late Friday, No. 2 poultry producer Pilgrim's Pride (NYSE: PPC ) went public with an offer to buy rival Gold Kist (Nasdaq: GKIS ) in an all-cash transaction that proposed to make Gold Kist shareholders 55% richer (before taxes) and create a new No. 1 in the poultry world.
As is often the case with public offers like this, there are more than a few interesting points to consider. For starters, Gold Kist revealed that this wasn't the first time that Pilgrim's Pride had come a-knockin' with an offer to buy the company. Moreover, Gold Kist management is apparently "surprised and disappointed" that Pilgrim's Pride made this latest offer public; conveniently ignoring, perhaps, the argument that Pilgrim's Pride management has a certain duty to inform its own shareholders of what it's doing with the company.
The price is also pretty interesting. For a little more than $1 billion, Pilgrim's Pride would vault just ahead of Tyson Foods (NYSE: TSN ) and become the country's largest poultry producer. When it comes to valuation, that's where things get a little tricky. Of course, the deal looks like a whopper today, but that's because the poultry sector is pretty much flat on its back. Look at things through the lens of a more normal environment, and the price isn't so shocking. You could even argue that it undervalues Gold Kist.
It would also seem that Pilgrim's Pride is running short on patience with Gold Kist. While it would appear that Pilgrim's Pride is open to talking about (and perhaps raising) the deal, it's also threatening to run an alternate slate of directors for Gold Kist investors to consider. Success there would presumably mean that Gold Kist investors want the deal, and that the newly altered board would be more accommodating to it.
All things considered, Gold Kist is probably playing this correctly so far. After all, European steel company Arcelor ably demonstrated the tangible benefits to appearing intransigent in the face of a suitor. If that means squeezing out a few extra bucks per share from Pilgrim's Pride (or someone else), then so much the better. By the same token, investors who bought Gold Kist as a dumpster-diving value play might want to consider salting away some of the profits, just in case the deal doesn't fly much further than a chicken.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).