Tyson and Hillshire Merger

Max von Gunden

Tyson Hillshire Merger

Wall Street Journal Project

Advanced Accounting

June 23, 2014

In what turned out to be a bidding war for Hillshire Brands Company, Tyson Foods, Inc. won the auction for the company against Pilgrim Pride Corp valuing Hillshire at $63 per share or $8.55 billion equity. (Tyson Wins Bid against Itself, www.online.wsj.com) This is what is known as a takeover premium where the amount initially offered is in excess of the stock priced of the acquired firm which is Hillshire Brands, Co. This takeover premium is 70% of Hillshire’s market price. Tyson’s offer is an all cash transaction and they are taking over all of Hillshire’s outstanding debt valued at $0.55 billion.

Usually a combination between two companies result in the nature of a friendly combination. In this situation, this turned into more of a hostile combination but the sale happen through an auction and not a one-on-one bid for the target firm. Pilgrim Pride made a formal tender offer of $45 as the initial bid on May 27th. Tyson followed two day later with a bid of $50 per share. A week later Pilgrim Pride put out a bid of $55 per share. An auction usually leaves the acquiring firm at risk for overpaying. (Tyson Wins Bid against Itself, www.online.wsj.com) How this happens is the selling company uses a variety of tricks to create demand and gain interest from buyers. As stated in the Wall Street Journal, a trick could be telling an interested party that his company’s meeting has a hard stop at a certain time, which shows that another bidder is about to come in and complete the takeover. (Tyson Wins Bid against Itself, www.online.wsj.com)

In fear of losing the deal, Tyson offered $63 per share for its final offer. Tyson would have won the deal if they had submitted an offer of just $57.50 per share. (Tyson Wins Bid against Itself, www.online.wsj.com) After the deal Tyson would expect to realize annual operational synergies in excess of $300 million....