Tyson Foods outbids rival

Deal not done yet, but it highlights the battle for breakfast

Tyson Foods won the bidding battle for Hillshire Brands, agreeing to pay $7.8 billion in a deal that it believes will bolster its efforts in the rapidly growing breakfast segment.

The richer-than-expected premium for Hillshire, at $63 a share in cash, is more than justified by growth opportunities in breakfast, portable and prepared foods sold under the Hillshire Farm and Jimmy Dean brands, in addition to expected cost savings from combining the two companies, Tyson CEO Donnie Smith saidMonday.

“Dowe thinkwe paid full and fair value? Yeah,” Smith said. “Do we think this will create significant shareholder value over time? You bet. … They’re a super add to our business.”

The offer, finalized Sunday evening, surpassed a bid fromrival Pilgrim’s Pride by almost $1 billion. In a statement Monday, Pilgrim’s said it wouldn’t go beyond an already sweetened offer of $55 a share and was withdrawing its offer.

But it’s not certain that Tyson’s deal will close. Tyson’s offer for Hillshire expires Dec. 12. And it is contingent on Hillshire dropping plans to buy Birds

Tyson

Pilgrim’s Eye frozen vegetable seller Pinnacle Foods in a $6.6 billion deal, including debt.

On Monday, Hillshire said it had not approved the offer from Tyson, which is based in Springdale, Ark. Hillshire said it had not changed its recommendation that shareholders vote for the Pinnacle deal.

“There can be no assurance that any transaction will result from the Tyson Foods offer,” said Hillshire, which is based in Chicago.

Analysts hadwarned that a bidding war could result in the winner overpaying for Hillshire. They also said such a merger could give the winner a competitive advantage that would be hard for the loser to match.

Athlos Research principal Jonathan Feeney said Tyson overpaid “in a conventional sense.” But, he said, Tyson can afford it because of what Hillshire brings to the table with its popular grocery brands.

One consumer advocate said the everyday grocery shopper might stand to lose.

Christopher Leonard, author of the recently released book “The Meat Racket: The Secret Takeover of America’s Food Business,” said the merger would give consumers fewer choices at the grocery store.

“This makes the business even less competitive and more consolidated than it already was,” Leonard said. “What we’ve seen over the past couple decades is, a handful of companies like Tyson have gone on a massivemerger spree… andthat means that consumers can’t use one of the most powerful things they have, which is choice, in the market. You can’t effectively choose.”

Breakfast food is a growing part of the packaged food business, and one in which Hillshire has been expanding. Tyson is eager to nab Hillshire products such as Jimmy Dean Delights breakfast sandwiches and sausages, which are the No. 1 brands in their categories.