“This is a great day for our company,” said Tyson Foods President and CEO Donnie Smith. “It’s an exciting day for Tyson Foods as we announced an important strategic opportunity for our company and make a huge leap forward in the growth of our Prepared Foods business. With the acquisition of Hillshire Brands, not only will Tyson Foods have the No. 1 brands of chicken and stacked pack bacon, we‘ll also have the No. 1 brands for sausage, breakfast sandwiches, hot dogs, corn dogs and super-premium sausage. Sean Connolly [Hillshire Brands’ CEO] is an impressive leader who has assembled an impressive team that is getting impressive results. And we’re looking forward to combining Tyson Foods and Hillshire to create a $40 billion consumer-centric, insights-driven marketing organization that would position us as a clear leader in prepared retail prepared foods with iconic brands. These two companies together also become the No. 2 player in frozen food.”
Hillshire would aid Tyson’s ability to stabilize its earnings by increasing return on sales and de-commoditizing its business, Smith added. “This [acquiring Hillshire Brands] would be a huge leap forward in growing our Prepared Foods segment, not to mention the gains to be made in combining our two companies’ considerable talents and resources in R&D, innovation, consumer insights, plus sales and marketing,” Smith said. “We can see this reaching across brands, across categories and across distribution channels. We believe we can realize significant annual synergies in excess of $300 million by year three driven primarily by operational efficiencies, purchasing, distribution, supply chain efficiencies, raw material utilization, aligning shared services and leveraging the sales and marketing team’s talents.”
Tyson Foods has been looking at growth options for a long time. “Although to the outside world this [pending Hillshire Brands acquisition] might appear to be happening quickly, I want to assure you that we have been thinking a long time about Hillshire and how it can complement Tyson Foods,” Smith confided.
“A couple years ago we began working with our board and advisors to do a complete assessment of ways to grow our company,” Smith continued. “And that assessment involved a deep dive on what we aspired to be in Prepared Foods. What we wanted is to have the No. 1 or No. 2 brands at retail because that’s really key to maximizing the supply chain and creating the kinds of returns we want. So, we cast a wide net and we looked at a number of significant opportunities and through various filters and the company that kept coming out on top was Hillshire. But two years ago or maybe even a year ago, we weren’t ready for it. Now, my confidence in our ability to absorb an acquisition of this side is much higher. We have taken steps to get our organization in line to really grow our Prepared Foods portfolio and we put Donnie King in charge of that group.”
When asked when he expected the acquisition of Hillshire Brands to close, Smith said, “All I can tell you is there was a process that was concluded last night [June 8] between us and another bidder. As a result of that, we submitted a binding offer to acquire Hillshire Brands. Hillshire is under contract with Pinnacle Foods and [Hillshire Brands] is not permitted to accept our offer until and unless that agreement with Pinnacle is terminated.”
Also this morning, Pilgrim’s Pride withdrew its bid to acquire Hillshire Brands. Did Tyson Foods expect serious bidding from more competitors in this process? “We understood the process, our balance sheet and our ability to put ourselves into a position to buy this business – to take this great team into the Tyson family and create shareholder value,” Smith told Meat&Poultry. “That’s what we were focused on.”
Once the Hillshire deal is behind it, Tyson intends to continue targeting other acquisition opportunities.
“It’s important for us to de-lever this [acquisition] quickly and we will do that,” he said. “Part of the importance of maintaining our Investment Grade rating with the agencies is to give ourselves the ability to quicker de-lever and make sure if there are other opportunities that come along to add to our portfolio, that continue to add value for our shareholders – that we’re in a position to be able to do that.”
When asked if there was an interest to aggressively take Hillshire Brands products international over time, Smith relayed, “Yes, we have discussed that. We frankly need to spend some time with the Hillshire team about doing that. We’re looking forward to having that conversation as soon as we can.
“We do not see the demand for protein contracting in the future,” he added. “Demand worldwide for protein is going to continue to grow at about 2 percent a year. We think most of that growth is going to come from outside of the US. International is still a very important part of our future. But timing plays a role here. We always [take] a long-term approach. But can you slow certain things down and speed certain things up? Sure, that’s the great potential within a portfolio as large as Tyson Foods’.”
