Hillshire looks beyond meat with Pinnacle Foods deal
NEW YORK — Hillshire Brands is pushing further outside the deli case with a deal to buy the maker of Birds Eye frozen vegetables, Duncan Hines cake mixes and Hungry-Man frozen dinners.
The Chicago-based company, which makes Hillshire Farm lunch meats, Jimmy Dean sausages and Ball Park franks, said on Monday that it would buy Pinnacle Foods in a deal valued at $4.23 billion. The move extends Hillshire's reach into other sections of the supermarket as more Americans watch how much meat they're eating.
Among Pinnacle's brands are Wish-Bone salad dressing, Celeste frozen pizzas and Vlasic pickles.
“Meats go with vegetables, sandwiches go with pickles,” Hillshire CEO Sean Connolly said in explaining why the deal made sense during a conference call with analysts.
In a phone interview, Connolly noted that Americans are eating meat just as often, but less of it per meal. He said that benefits Hillshire because foods that incorporate different ingredients — such as its Jimmy Dean breakfast sandwiches — are more profitable than simpler items such as lunchmeats or sausages.
“We've often said we like products that are more than just meat,” Connolly said.
Hillshire, which has been struggling with weak sales, said last month that it was buying Van's Natural Foods, which makes gluten-free products including cereal, chips and snack bars.
Given its reduced reliance on meat, the expanded Hillshire is expected to have significantly higher profit margins. Rising prices for meat have hurt Hillshire's profit margins and led the company to increase prices in stores.
Still, some of Pinnacle's brands such as Hungry-Man are viewed as having an outdated image at a time when many people are trying to move away from foods they feel are processed or unhealthy. On Tuesday, the frozen food industry plans to start its first TV ad defending the nutritional benefits of its products.
When asked whether Hillshire plans to hold on to all of Pinnacle's products, Connolly said it was “too early to tell” but noted Hillshire's record of focusing on its strongest brands. He added that Birds Eye, which has a more health-conscious image, was particularly attractive to Hillshire when evaluating the deal.
In a note to investors about the acquisition, J.P. Morgan analyst Ken Goldman declared the “strategic rationale unclear.”
“Although we can see some logic behind the combination of lunchmeat and pickles, along with waffles and syrup, the connections seem a bit thinner than what we hope for in most food transactions,” he wrote.
Connolly declined to specify the scope of layoffs expected as a result of the acquisition. But he noted that the deal should generate $140 million in annual savings from consolidated manufacturing and other overhead costs.
Each share of Parsippany, N.J.-based Pinnacle Foods Inc. common stock will be exchanged for $18 in cash and 0.5 shares of Hillshire Brands Co. common stock. The companies said the implied purchase price is $36.02 per share, an 18 percent premium to Pinnacle's Friday closing price.
Including Pinnacle's outstanding debt, they put the deal's total value at about $6.6 billion.
The combined company will use the Hillshire Brands name and be based in Chicago.
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