Boston, MA 06/18/2014 (wallstreetpr) – Hillshire Brands Co (NYSE:HSH) has made it loud and clear that the acquisition of Pinnacle Foods Inc (NYSE:PF) is not in the best interest of its shareholders, and it is no longer interested in buying the company. It said it would recommend against the deal to its shareholders who are expected to vote on the matter in the next few months.
The reason Hillshire is abandoning Pinnacle in the cold is that it has a sweeter deal from Tyson Foods, Inc. (NYSE:TSN).
Although Hillshire agreed to buy Pinnacle for $6.6 billion including debt, the company has received a proposal from Tyson that wants to eat it for breakfast for $8.55 billion and the management believes that is better for the shareholders. In any case, the company has a responsibility to seek the best deals for its shareholders.
Termination fee
Hillshire Brands Co (NYSE:HSH) has asked Pinnacle to terminate their agreement of which it will have to pay a termination fee in the neighborhood of $163 million. However, Pinnacle has the option to let the agreement go to a vote by the shareholders of Hillshire of which it might part with a smaller amount of money in termination fee if the shareholders’ verdict is adverse.
Although Hillshire considers the offer from Tyson favorable to its shareholders, the company cannot terminate the agreement with Pinnacle or sign the new offer, of course, until after the vote of its shareholders.
Tyson’s offer for Hillshire represents about 70 percent premium on the unaffected share price of Hillshire. Tyson expects Pinnacle promptly to accept to terminate the deal with Hillshire so that it does not delay the opportunity of Hillshire shareholders to benefit from the new sweet deal from it.
Loss of opportunity
The move by Hillshire Brands Co (NYSE:HSH) to recommend against the original acquisition agreement with Pinnacle comes as bad news for the company. Nonetheless, Pinnacle stands to benefit from the termination fee, which it can channel through the improvement of its business. Pinnacle is majority-owned by private equity firm Blackstone Group.
