Brands Co. investor Eminence Capital LLC, one of the meat company’s 20 largest shareholders, plans to vote against the $4.3 billion deal to acquire Pinnacle Foods Inc. In buying Pinnacle, Hillshire is paying a high price for a “mediocre set of assets,” Eminence Chief Executive Officer Ricky Sandler said in an interview. The transaction has a real possibility of getting voted down by shareholders, he said. Eminence owned more than 1.35 million Hillshire shares as of March 31, according to data compiled by Bloomberg.
Hillshire, which sells Jimmy Dean sausages and Ball Park hot dogs, has been making acquisitions to reignite growth and decrease its reliance on meat products. Pinnacle owns brands ranging from Vlasic pickles to Wish-Bone salad dressings, as well as Birds Eye frozen vegetables. The deal may spread Hillshire too thin, Sandler said.
“This is pretty far afield of what their core strengths are,” he said. “We don’t want to own a portfolio of supermarket assets.”
Jon Harris, a spokesman for Chicago-based Hillshire, didn’t respond to a request for comment.
Under the terms of the deal, announced May 12, Pinnacle investors will receive $18 in cash and half a share of Hillshire Brands for every Pinnacle share they own. The total price was almost 20% higher than Pinnacle’s closing price on May 9, the last trading day before the transaction was disclosed. Including debt, the deal is valued at about $6.6 billion.
Hillshire shares dropped as much as 7.4% on the day the purchase was announced, partly on concern that it will increase the company’s borrowing. After the deal closes, Hillshire will have five times more debt than earnings before interest, taxes, depreciation and amortization on a trailing 12-month basis. It also is suspending share repurchases, further irking shareholders.
Hillshire rose 2.2% to $37.02 at the close today in New York. The stock is up 4.3% over the past 12 months.
The transaction may have been a “defense mechanism” to prevent Hillshire from becoming an acquisition target itself, Sandler said. JPMorgan Chase & Co. had speculated that Hormel Foods Corp., Tyson Foods Inc. and BRF SA saw Hillshire as a potential target.
“I don’t think the company explored other alternatives before going down this route,” Sandler said. “The deal makes them less attractive to an acquirer.”
