Wall St. Braces for Food Fights as Tyson Tops Pilgrim’s Pride’s Bid for Hillshire

Updated, 8:13 p.m. | A week ago, many shareholders of Hillshire Brands were complaining about its planned acquisition of Pinnacle Foods, the maker of Birds Eye frozen vegetables.

Now those investors find themselves at the center of a potential bidding war for their own company, the home of its namesake lunch meats, Ball Park hot dogs and Jimmy Dean sausages.

Hillshire’s turnabout from would-be pursuer to pursued was trumpeted loudly on Thursday by a $6.8 billion bid by Tyson Foods. That buyout offer came two days after a $6.4 billion proposal by Pilgrim’s Pride, another of the country’s big poultry producers. Both offers include the assumption of debt.

The sudden frenzy of deals illustrates how the food industry is pushing for growth. Both Tyson and Pilgrim’s Pride are seeking well-known food brands, which are more profitable than their traditional commodity products. Fattened by high chicken prices and cheap corn feed costs, the two meat companies appear emboldened to pursue deals.

“Both these companies are enjoying peak margins,” said Robert Moskow, an analyst with Credit Suisse. “They’re striking while the iron is hot.”

Tyson’s chief executive, Donald Smith, said in a statement: “We believe that there is a strong strategic, financial and operational rationale for the combination of Tyson and Hillshire.”

Other branded meat purveyors, like Jack Link’s, may find themselves courted by eager suitors as well.

Food companies have sought growth in additional areas, including gluten-free offerings and other health-conscious offerings. Post Holdings agreed last month to buy Michael Foods for $2.5 billion to get into egg whites and potatoes.

Since Hillshire began life as an independent company in 2012 — formed from the breakup of Sara Lee, which spun out its coffee and tea business — Wall Street has considered it a potential target for an acquisition by a bigger company, given its ownership of some of the best-known brands in the supermarket.

That may explain why analysts and investors were surprised and dismayed when the food maker announced its takeover offer for Pinnacle, a deal that critics said would dilute Hillshire’s portfolio of brands too much. JPMorgan Chase analysts, for instance, wrote in a research note earlier this week that they believed the bid by Pilgrim’s Pride would be a better option for shareholders.

Now these shareholders have the option of weighing two big takeover offers for Hillshire. Tyson is offering $50 a share in cash, about 35 percent higher than where Hillshire’s stock price was earlier this month before the offers. Pilgrim’s Pride had offered $45 a share in cash.

Tyson is one of the largest producers of chicken, pork and beef, with more than $34 billion in annual revenue. And Pilgrim’s Pride reaped $8.4 billion in sales last year. By contrast, Hillshire reported $3.9 billion in revenue.

Hillshire has known it was a target for some time. A few months before it made its offer for Pinnacle, Pilgrim’s Pride privately approached the company about a merger but was rebuffed.

The Tyson offer was set in motion after Hillshire made its bid for Pinnacle, according to a person briefed on the process. Tyson was surprised when Pilgrim’s Pride made its own offer this week.

In a letter to Hillshire’s chief executive, Sean M. Connolly, Mr. Smith wrote, “We would have preferred to make this proposal to you privately, but in light of current circumstances we believe that it is in the best interests of your and our shareholders to have current and accurate information about our proposal and the reasons we believe that it is a compelling opportunity for both of our companies.”

With the entrance of the two suitors, analysts said that Hillshire would most likely withdraw from the Pinnacle takeover, since both prospective buyers had made clear that their offers were contingent on the scuttling of the other deal.

“Our interest is in the company on its own, and not as combined with Pinnacle,” Mr. Smith wrote in his letter to Mr. Connolly. “Accordingly, the termination of the Pinnacle merger agreement would be a condition to our proposed transaction.”

Hillshire said in a statement on Thursday that it was evaluating Tyson’s offer.

Shares of Hillshire jumped 17.7 percent on Thursday, to $52.76, indicating hope among investors that an even higher bid would come in. But analysts and people involved in the various offers suggested that other companies would be hard pressed to enter a bidding war.

One prospective suitor, Hormel, might be hamstrung by potential antitrust concerns.

Now Pilgrim’s Pride and its majority owner, the Brazilian meatpacking titan JBS, must decide if they want to enter into a bidding war.

JBS has already had to make one strategic shift in response to the Tyson deal. The Brazilian meat company disclosed on Thursday that it had temporarily withdrawn a planned bond offering because it needed to select a new lead underwriter. The soon-to-be-replaced bank structuring the deal is Morgan Stanley, Tyson’s lead adviser.