Tyson Foods Wins Fight for Hillshire

Two of the largest chicken producers, Pilgrim’s Pride and Tyson Foods, have been fighting over Hillshire Farms. On Monday, Tyson Foods raised its offer to $63 a share in cash, which values Hillshire at $7.7 billion. Last week, Pilgrim’s Pride had raised its bid 22% to $55 a share; however Pilgrim’s Pride has withdrawn its offer.

Acquiring Hillshire’s well-known brand names will give Tyson access to higher-margin products and is worth the steep price. Most of the focus has been on the Tyson – Pilgrim’s Pride bidding war, but Hillshire may still stick with its original strategy of acquiring Pinnacle Foods. The unsolicited bids from Pilgrim’s Pride and Tyson Foods came after Hillshire announced its acquisition of Pinnacle Foods for $4.3 billion on May 12.

The activity surrounding Hillshire indicates continued consolidation in commodities. Volume is so important in this industry so companies are investing in vertical integration and acquiring competitors in order to achieve scale.

Tips for Strategic Acquirers

There are a couple of lessons from the Hillshire deals for strategic acquirers.

Bidding wars and auctions drive up the price and can get ugly very quickly. Try to stay away from public auctions by pursuing not-for-sale, privately held companies. Emphasize your shared strategic vision for the future with company owners rather than price and you may find they are willing to choose you over a higher competing offer.

Understand your strategic reason for acquisition. This one reason should drive your entire M&A process. Although we don’t know the details of Tyson’s strategy, acquiring a strong brand name like Hillshire may be central to the company’s growth. You can overpay for the right acquisition and recover, but you can underpay for the wrong acquisition and never recover.

Photo Credit: Melissa Hiller via Flickr cc