“When you combine Hillshire and Pinnacle, the resulting company stands just below Hormel and Campbell’s on size, but with a sales base that is almost exclusively focused in the US,” said Sean Connolly, CEO of Hillshire Brands, during a conference call on May 12 to discuss the proposed acquisition. “The combined company will be the No. 3 player in frozen. It gets there with what I believe are two of the strongest billion-dollar brands in frozen: Jimmy Dean and Birds Eye.”
Pinnacle Foods’ brands include Birds Eye, Vlasic, Wish Bone, Duncan Hines, Van de Kamps, Mrs. Paul, Aunt Jemima, Log Cabin, Hungry Man and Armour canned meats.
Connolly added that both companies have portfolios of iconic brands that are centered on convenient meals, and that both appeal to the same consumers.
“Meats go with vegetables, sandwiches go with pickles,” he said. “Both companies have highly complementary breakfast brands, and both have pie and dessert brands. It is a tremendous fit.”
Financial analysts on the call expressed concern about Hillshire extending its reach throughout the center of the store, with one analyst noting such diversification is what led the Sara Lee Corp. to divest many of its brands and eventually spin off its coffee and meat businesses. Hillshire Brands was created out of the meat business spin-off.
“The way I think about it is we are a consumer-branded food company, and it all starts with who are the consumers we are speaking to?” Mr. Connolly said. “The consumers we are speaking to are buying products in the center of the store and refrigerated and frozen. We’re trying to build a relationship with those consumers.
“We like value-creation opportunities in all three zip codes (dry, frozen and refrigerated). In terms of go-to-market capabilities, we deal with customers on a top-to-top level. Much of my management team has been involved in center-store brands for the bulk of our career, myself included. That’s not an issue at all in terms of understanding the center of the store.
“One of the things I like about this deal is that the Pinnacle team has tremendous scale and credibility in the center of the store, and that gives us real access to the center of the store that we did not have previously — access that could prove meaningful to initiatives like our jerky platform, and as well as extension possibilities with the trademarks we have within the Hillshire portfolio.”
Regarding the comparison to Sara Lee, Connolly noted the two situations are very different.
“I think when you look at the old Sara Lee you see everything from Hanes underwear to international coffee companies to Coach purses to US food businesses,” he said. “That is diversification, and it’s diversification that I’m not clear ultimately added a lot of value for our shareholders.
“What we are now, I would say, is a focused food company. We are not what you’d call a pure-play meat company, but you could say we are a pure-play branded convenient food company in the United States of America. I think that is an extremely focused way to look at the business.”
Connolly added that consumers do not shop by such categories as dry goods, frozen foods and refrigerated products.
“We are marketing to consumers who attack branded foods by occasion – breakfast, lunch, dinner, and snacking,” he said. “Within each of those occasions, they have a consideration set of brands and products that they go back and forth between.
“When I look at it from a value creation standpoint, and we think about words like pure play and focus, I like the notion that we are focused in the US geography. I like the notion that we are focused on convenient branded foods. Then I like the notion that these brands are highly complementary to one another, as opposed to being highly cannibalistic of one another.”
The transaction is expected to close in September if all regulatory and shareholder approvals are achieved. Once complete, Pinnacle Foods will be absorbed into Hillshire Brands. The company will remain based in Chicago and Connolly will serve as president and CEO of the business.
Connolly said he expects the transaction to deliver $140 million in cost synergies by the end of year three. The synergies are expected to be evenly split between supply chain and consolidation of overhead expenses.
