Hillshire deal for Pinnacle is Blackstone’s exit

Target: Pinnacle Foods Inc

Price: $4.3 billion


Sponsor: Blackstone Group LP

Buyer: Hillshire Brands Co

Financial Advisers: Target: Bank of America Merrill Lynch and Blackstone Advisory Partners; Buyer: Centerview Partners, Goldman Sachs

Legal Counsel: Target: Simpson Thacher & Bartlett LLP; Buyer: Skadden, Arps, Slate, Meagher & Flom LLP

The cash-and-stock deal will establish Hillshire as the owner of 10 brands that are either No. 1 or No. 2 in their category, the companies said.

The deal, Hillshire’s third in a year, will build the company’s presence in the center aisles of supermarkets, sister news service Reuters reported. Most of the company’s products are sold in the frozen or chilled sections, which tend to be located around the store’s perimeter.

Pinnacle’s brands also include Mrs. Paul’s frozen seafood, Wish-Bone salad dressing and Log Cabin syrup. Hillshire’s other products include Hillshire Farm luncheon meats, Aidells sausages and Gallo Salame salamis.

Pinnacle shareholders will own about 33 percent of the combined company after the deal closes around September. Private equity firm Blackstone Group LP, which owns about 51 percent of Pinnacle, has agreed to vote in favor of the deal, the companies said. Blackstone took Pinnacle private for about $2.2 billion in 2007. The company relisted after an IPO in March 2013.

“The combined company will be the No. 3 player in frozen. And it gets there with what I believe are our two of the strongest billion dollar brands in frozen, Jimmy Dean and Bird’s Eye,” Hillshire CEO Sean Connolly, who will head the combined company, said on a conference call.

Hillshire, formerly the food business of Sara Lee Corp, is offering $18.00 in cash and half of one of its shares for each Pinnacle share. The offer values Pinnacle at $36.48 per share, a premium of about 20 percent to Pinnacle’s closing price on the last day of trading before the deal was announced. Including debt, the deal is valued at $6.6 billion. Pinnacle’s debt stood at about $2.5 billion as of Dec. 29, according to a regulatory filing.

Blackstone, which invested a total of $700 million in Pinnacle in 2007 and 2010, stands to make a capital gain in realized and yet-to-be realized profits in excess of $2 billion, according to a person familiar with the financial details.

Hillshire said it expects the deal to immediately add to earnings and generate $140 million in annual cost savings three years after closing. It expects the combined company to achieve annual earnings per share growth of more than 15 percent. Hillshire Brands said it had secured committed financing from Goldman Sachs & Co. The company said it expects to maintain its current annual dividend of 70 cents per share, but will suspend its share buyback program.

Hillshire Brands is being advised by Centerview Partners and Goldman Sachs, while Pinnacle is being advised by Bank of America Merrill Lynch and Blackstone Advisory Partners.

Skadden, Arps, Slate, Meagher & Flom LLP is legal adviser to Hillshire, while Simpson Thacher & Bartlett LLP is advising Pinnacle.

Siddharth Cavale is a correspondent for Reuters in Bangalore. Additional reporting by Greg Roumeliotis.