Bids for sausage maker Hillshire Brands Co (HSH.N) don't have much room to rise above current levels, analysts tell Reuters.
Pilgrim's Pride Corp (PPC.O) sweetened its per-share bid on Tuesday to $55 from $45, beating Tyson Foods Inc's (TSN.N) $50 offer.
Some analysts are betting the final deal will be around $60 per share, a view backed by investors, who have sent Hillshire's stock above $59.
"These are rich, rich offers," said Vicki Bryan, senior high yield analyst at corporate bond research service Gimme Credit. Bryan thinks bids for the seller of Jimmy Dean sausages and Ball Park hot dogs are nearing their peak.
Food deal valuations are hitting new highs, fueled by low interest rates and plenty of available capital.
Year-to-date, median multiples for food and beverage, as well as agriculture and livestock deals, are nearly 11 times the previous 12 month's earnings before interest, taxes, depreciation and amortization (EBITDA). That is the highest level since the full year of 2005, according to Thomson Reuters data.
The revised $55 bid from Pilgrim's implies a valuation of 14.5 times EBITDA for a total value of $7.7 billion, Bernstein Research analyst Alexia Howard said in a note
Other recently announced food deals with high multiples include flavorings group Symrise AG's (SY1G.DE) $1.8 billion offer for food ingredient maker Diana Group at 14 times EBITDA, and cereal maker Post Holdings Inc's (POST.N) $2.5 billion deal to buy egg producer Michael Foods for around 10 times EBITDA, according to research firm investment bank Harris Williams & Co.
"Tyson can certainly get to a $60 per share bid," Bernstein's Howard said. "We do not see it going much higher than that, however, given the likely negative shareholder reaction to a much richer valuation for Hillshire."
Tyson declined comment.
Both Pilgrim's and Tyson would require Hillshire to terminate its bid for Birds Eye frozen vegetable seller Pinnacle Foods Inc (PF.N). Some analysts and investors view a Pinnacle deal, with a total value of $6.6 billion, as inferior.
Pilgrim's, the second-largest U.S. chicken processor, is controlled by Brazilian meat packer JBS SA (JBSS3.SA) and has the flexibility to take on added debt without threatening its investment-grade credit rating, Gimme Credit's Bryan said.
This isn't the first time JBS has taken a run at Hillshire's assets. Reuters reported in 2010 that JBS was trying to buy Hillshire predecessor Sara Lee, but talks broke down over price.
Tyson has said it could use shares as currency to protect its credit rating. And some analysts said Tyson's borrowing costs are low enough to leave room for a successful $60-per share deal.
But others say that would be a step too far.
"If Tyson participates in another round of the bidding war, we think there is a strong likelihood that the firm would overpay," Morningstar analyst Liang Feng said in a note.
