Hillshire Brands Co., the maker of Jimmy Dean meats, agreed to buy Pinnacle Foods Inc. for about $4.3 billion, gaining products such as Birds Eye frozen foods, Duncan Hines baking mixes and Vlasic pickles.
Investors will receive $18 in cash and half a share of Hillshire Brands for every Pinnacle share they own, the companies said today in a statement. The total amount is almost 20 percent higher than Pinnacle’s closing price on May 9, the most recent trading day. Including debt, the deal is valued at about $6.6 billion.
The purchase, Hillshire’s third in less than a year, lets it add frozen-food brands such as Hungry-Man, giving the company a larger presence in grocery stores. Hillshire Chief Executive Officer Sean Connolly, who will run the combined business, is buying Pinnacle about a year after the business’s initial public offering. Blackstone Group LP had acquired Pinnacle for $2.2 billion about seven years ago and took it public again.
“The acquisition creates a leading branded food company with enhanced scale, reach and capabilities, while providing margin expansion,” Connolly said in the statement.
Shares of Chicago-based Hillshire rose 2.8 percent to $38 in early trading. Pinnacle, based in Parsippany, New Jersey, jumped as much as 27 percent to $38.76.
The combination is expected to produce $140 million in annual cost savings, stemming from supply-chain improvements and consolidation of expenses.
Hillshire, which had about $4 billion in revenue in fiscal year 2013, agreed to buy Van’s Natural Foods for about $165 million last month. The company also bought gourmet jerky maker Golden Island for $35 million in September.
Pinnacle serves more than 85 percent of American households and has a No. 1 or No. 2 market position in 10 of 13 grocery categories in which it competes, according to the statement.
The deal comes less than a year after Pinnacle acquired Unilever’s Wish-Bone salad dressings unit for $580 million. Both Pinnacle Foods and Hillshire have been cited as possible bidders for Unilever’s Ragu pasta sauces unit. Unilever confirmed last month that it was reviewing Ragu and the Slim Fast diet-food unit as part of CEO Paul Polman’s ongoing pruning of food brands. Ragu may fetch as much as $2 billion, people familiar with the matter have said.
The purchase of Pinnacle reflects a multiple of 9.6 times adjusted earnings before interest, taxes, depreciation and amortization, the companies said. Both boards have approved the deal, which is expected to close by September.
Hillshire was known as Sara Lee Corp. before spinning off its tea and coffee segment. It renamed itselfHillshire in June 2012 and appointed Connolly as CEO. The company has since focused on improving lunch-meat quality, creating new hot-dog flavors and winning over more customers with lower-calorie breakfast sandwiches. The company’s Jimmy Dean Delights bacon, egg and cheese breakfast sandwiches have 230 calories.
Affiliates of Blackstone, which own about 51 percent of Pinnacle Foods’ outstanding common stock, have agreed to vote in favor of the transaction, according to the statement.
Hillshire has committed financing from Goldman Sachs Group Inc. The company intends to maintain its current annual dividend as it undertakes the merger, though it will suspend a stock buyback program.
Other recent food deals include Tall Tree Food's purchase of Klement Sausage Co. Inc., and B&G Foods' (NYSE: BG) deal for Specialty Brands of America. In 2013, Hormel Foods Corp. (NYSE: HRL) paid $700 million for Skippy brand peanut butter, winning Mergers & Acquisitions M&A Mid-Market Award for Deal of the Year.
Additional reporting by Allison Collins.