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Pinnacle Foods Inc. (NYSE: PF) stock jumped 15% Monday when the packaged foods company agreed to be acquired by Hillshire Brands Co. (NYSE: HSH). Hillshire will buy Pinnacle for roughly $4.3 billion in cash and stock.
Investors sent Pinnacle shares up to $36.22 in morning trading after closing at $30.45 Friday. More than 11.5 million shares changed hands by noon, compared to Pinnacle's average daily volume of 510,000 shares.
Under terms of the deal, Pinnacle shareholders will receive $18 in cash plus half a share of Hillshire Brands for each Pinnacle share held. The combined amount represents a near 20% premium to Pinnacle's closing price on May 9. Including Pinnacle's debt of roughly $2.5 billion, the transaction value jumps to about $6.6 billion.
The deal handsomely boosts Hillshire presence in the frozen food aisle, making it the No. 3 player in that market segment. And it heartily expands Hillshire's overall reach in supermarkets.
Pinnacle's grocery brands include legendary products such as Birds Eye frozen foods, Mrs. Paul's frozen seafood, Log Cabin syrup, Celeste pizza, Duncan Hines baking mixes and frostings, and Vlasic pickles. Hillshire's brands include Hillshire Farm, Hungry Man, Jimmy Dean, and State Fair brands of deli meats, sausages, and hot dogs. Also under the Hillshire umbrella is the Sara Lee line of frozen desserts.
The companies' complementary brands and similar culture should help the merger proceed seamlessly.
The deal is expected to immediately add to earnings. Hillshire projects the combined company will achieve annual earnings per share growth of more than 15%. Also expected is $140 million in annual cost savings, stemming from supply-chain improvements and expense consolidations.
"The combination on Hillshire Brands and Pinnacle Foods brings together two highly complementary organizations with strong brands, skilled employees and lean cost structure," Sean Connolly, president and chief executive officer of Hillshire Brands, said in a press release. "The new Hillshire Brands will have a strengthened position in frozen foods, new opportunities in the center store for our brands and in refrigerated for Pinnacle Foods' brands."
While Pinnacle (PF) stock soared on the deal, Hillshire shares weren't doing as well...