There is a bidding war afoot for Hillshire Brands Co., which you may know as the maker of Jimmy Dean sausages and Ball Park hot dogs. Meat processor Tyson Foods swept in with a bid of $50 a share Thursday, topping a recent offer from rival Pilgrim’s Pride Corp.
Which has us wondering: Why does Hillshire suddenly seem to be King of the Prom?
1) Diversification. Turns out, meat processors like Tyson Foods and Pilgrim’s Pride have one thing on their minds. “The main driver of all these offers that are being made to purchase Hillshire right now is the increasing price for beef, pork, chicken,” says analyst Hester Jeon with IBISWorld. These protein companies are heavily commoditized, with low margins, and historic volatility, according to senior analyst Robert Moskow of Credit Suisse, which has investments in this sector.
2) Moving up the value chain. Hillshire, with its portfolio of value-added prepared foods (like Jimmy Dean Sausage, Egg, & Cheese Croissant Sandwiches) offers a range of products with higher profit margins.
3) Pressure to move fast. Hillshire was planning to acquire packaged-foods company Pinnacle Foods Inc. Its suitors probably want to intervene before that happens, as Pinnacle isn’t an attractive investment for them.
4) Taxes? Hillshire is approaching the two-year anniversary of becoming a new company (it grew out of the old Sara Lee). Long story short, two years after a spinoff there’s less of a threat of tax penalties should the new company be bought.