Hillshire, Tyson Make Deal Official

Hillshire Brands (NYSE:HSH) on Wednesday formally agreed to a $7.7 billion deal to be acquired by Tyson Foods (NYSE:TSN), moving forward with the combination after Pinnacle Foods (NYSE:PF) stepped aside.

Tyson’s proposal was contingent on the termination of a Hillshire deal to purchase Pinnacle, which agreed to scrap the agreement earlier this week. Tyson said it will cover Hillshire’s $163 million breakup fee.

Soon after Hillshire announced its buyout of Pinnacle, a bidding war emerged for the maker of Ball Park hot dogs and Jimmy Dean sausage. Pilgrim’s Pride (NYSE:PPC), a unit of Brazilian meatpacking giant JBS, kicked off the race to acquire Hillshire with an unsolicited bid.

Tyson eventually secured a deal with an offer of $63 a share early last month. Including Hillshire’s debt, the transaction is valued at roughly $8.5 billion.

Springdale, Arkansas-based Tyson, the nation’s largest chicken producer by sales, expects the acquisition to close by Sept. 27.

Tyson has said the addition of Hillshire will give the company a footprint in the growing category of breakfast foods. When the winning bid was announced, Tyson chief executive Donnie Smith noted how brands like Jimmy Dean rarely become available.

“Our strategy has been to grow our prepared foods business, and it has been our aspiration to be a leader in retail prepared foods just as we are in chicken,” Smith said at the time. “Now we will have those iconic #1 and #2 brands in numerous categories.”

Tyson has long sought to expand its portfolio of branded products sold in grocery stores. Packaged meat products generate stronger profit margins than meat sold directly to restaurants and other food-service providers. Tyson relies on that business for a significant portion of its revenue.

Tyson shares rose 1.1% to $38.28 in recent trading. Hillshire was up 12 cents at $62.75.