Source: Tyson Foods

May 27 was a big day for Hillshire Brands (HSH.DL) shareholders. After news broke that Pilgrim's Pride (PPC 1.60%) had offered to buy the company in a deal valued at $5.5 billion (excluding debt), shares of the meat-centric company soared 22% to close at $45.19.  The rally continued on May 29 when news broke Tyson Foods (TSN 0.25%) made an even higher offer of $6.1 billion ($50 per share), sending Hillshire's shares up another 18% to close at $52.76.

For the Foolish investor with a stake in the company, this could have major implications. But for those looking for a bargain, is now the time to buy shares of Hillshire, or would Pinnacle Foods (NYSE: PF), Pilgrim's Pride, or Tyson Foods make for a more sensible investment?

A Hillshire buyout has major implications for shareholders!
If a deal is approved between Hillshire and Pilgrim's Pride, shareholders of the former will receive cash consideration of $45 per share. In addition to being almost 22% above the company's previous closing price of $37.02, a buyout would imply a 48% jump compared to the stock's 52-week low.

Source: Hillshire

Currently, Pilgrim's Pride's offer places a pretty hefty price tag on Hillshire, amounting to 22 times 2013's earnings and 26 times 2014's expected earnings. In exchange for this, the combined company will have revenue of about $12.5 billion on earnings of $694 million.

Tyson Foods' offer provides investors with an even more attractive return.  At $50 per share, the deal would imply a 35% increase over Hillshire's share price prior to the bidding war and a 65% jump over the business's 52-week high.  

If consummated, the transaction would place a valuation on Hillshire of about 25 times 2013's earnings and 29 times the company's 2014 forecasted earnings.  In exchange for this, Tyson Foods would grow even larger than it is today, with revenue expected to come in around $40.8 billion and net income hitting $1.2 billion.

Source: Tyson Foods

For shareholders of Hillshire, the deal looks like a nice opportunity. This is especially true when you consider that the company's results these past few years have been mediocre at best. Between 2011 and 2013, revenue rose just 1% from $3.88 billion to $3.92 billion, while operating income increased 31% from $227 million to $297 million.

Over this same three-year period, rival Pilgrim's Pride saw its top line increase a respectable 12% from $7.54 billion to $8.41 billion. The company's level of profitability also came in considerably better than Hillshire's during this time frame, rising from a loss of $373.6 million in 2011 to a gain of $638.9 million by year-end 2013.

Source: Pilgrim's Pride

The only major risk of an acquisition involves how much debt Pilgrim's Pride would have to assume to make a deal work. With just $552 million in cash on hand, the business would have to finance the vast majority of its purchase with debt. This, in conjunction with the $502.1 million in long-term debt (including its capital lease obligations) on its balance sheet and $840 million in debt on Hillshire's balance sheet, would leave Pilgrim's Pride shareholders holding a highly levered company.

What's up with Pinnacle Foods?
In response to Pilgrim's Pride's offer, shares of Pinnacle Foods fell more than 5% to close at $31.48. The reason for this drop in share price stems from the company's relationship with Hillshire. On May 12, Pinnacle Foods agreed to be bought out by Hillshire in a transaction that consisted of $18 per share in cash and 0.5 shares of Hillshire for every share of Pinnacle Foods.

Pinnacle Foods

As of the close of business on May 23, the cash and stock components valued Pinnacle Foods at $36.51 per share, which equates to almost $4.3 billion, 13% higher than the $30.45 per share the business could be bought for prior to its proposed buyout. In the event that Hillshire does agree to be acquired by Pilgrim's Pride, it's likely that Pinnacle Foods will see its share price drop more, very possibly to the level it was trading at before Hillshire elected to buy it; but shareholders will receive a $163 million breakup fee as a consolation prize.

Foolish takeaway
Based on the data provided, it's clear that Pilgrim's Pride is very interested in picking up Hillshire. While the transaction would require a great deal of debt to complete, it would create a larger company with more market power than either company has individually. For shareholders who currently own a piece of Hillshire, this would be a net benefit. But for anybody looking to get in now, prospects are limited.

At its current price, Hillshire's stock should fall back to $45 unless another bidder emerges. While this is possible, the Foolish investor who didn't already own shares in the business shouldn't bet on it. The smarter option might be to consider a stake in Pinnacle Foods or Pilgrim's Pride. If shareholders believe that Pilgrim's Pride can take Hillshire and make it a more efficient operation, or if it seems likely that Pinnacle Foods can remain a strong stand-alone entity, either prospect could make a lot of sense going forward.