Hillshire Brands to Acquire Pinnacle Foods for $6.6 Billion

On May 12, 2014

The Hillshire Brands Company and Parsippany-based Pinnacle Foods Inc. have announced that they have entered into a definitive agreement under which Hillshire Brands will acquire all outstanding shares of Pinnacle Foods in a cash and stock transaction. Under the terms of the agreement, each share of Pinnacle Foods common stock will be exchanged for $18.00 in cash and 0.50 shares of Hillshire Brands common stock. The total enterprise value of the transaction is approximately $6.6 billion, including Pinnacle Foods’ outstanding net debt, which reflects an adjusted EBITDA multiple of 9.6x. The transaction brings together two highly complementary businesses with leading, iconic brands to create a diversified food company with estimated pro forma 2014 sales of $6.6 billion. On a combined basis, the companies will have leading positions in key frozen, refrigerated and center of store grocery categories.

The fixed exchange ratio of 0.50 shares of Hillshire Brands common stock was determined based on the ten day average closing price of Hillshire Brands as of May 9, 2014. The implied purchase price based on this average is $36.02 per share and represents an 18% premium to the price of Pinnacle Foods’ common stock based on the closing price on May 9, 2014. In conjunction with the agreement, certain affiliates of Blackstone, which collectively hold approximately 51% of Pinnacle Foods’ outstanding common stock, have entered into a voting agreement and, subject to its terms and conditions, agreed to vote their shares in favor of the transaction. The transaction was unanimously approved by the boards of directors of both companies and is expected to close by September 2014, subject to shareholder and regulatory approvals and other customary closing conditions.

Financial Highlights

The combination is expected to be immediately accretive to earnings. By the end of year three, Hillshire Brands expects the combined company to achieve $140 million in estimated annual cost synergies, primarily derived from supply chain enhancements and the consolidation of overhead expenses, and annual EPS accretion in excess of 15%. The company also expects to realize incremental revenue growth opportunities based on its expanded brand portfolio and broader in-store reach. With this transaction, the company will also acquire Pinnacle Foods’ tax assets with an estimated present value of approximately $390 million. The adjusted EBITDA multiple is approximately 9.6x based on Pinnacle Foods’ 2013 adjusted EBITDA (including the full realization of the Wish-Bone acquisition synergies) and inclusive of the expected run-rate cost synergies related to the transaction and the previously mentioned estimated tax assets.

Hillshire Brands has secured committed financing from Goldman, Sachs & Co. Based on the strong cash flow characteristics of the combined company, Hillshire Brands expects to focus on continuing to invest in its business, reducing leverage over time and pursuing opportunistic acquisitions. Additionally, the company expects to maintain its current annual dividend of $0.70 per share and to suspend its previously announced share buyback program.

Additional Details

The combined company will operate under the Hillshire Brands name and will be headquartered in Chicago, IL. Sean Connolly, will serve as president and chief executive officer of the combined company. Hillshire Brands will appoint a representative from Blackstone to its Board upon the closing of the transaction.

Advisors

Centerview Partners and Goldman, Sachs & Co. are acting as financial advisors to Hillshire Brands, and Skadden, Arps, Slate, Meagher & Flom LLP is acting as its legal advisor. BofA Merrill Lynch and Blackstone Advisory Partners are acting as financial advisors to Pinnacle Foods, and Simpson Thacher & Bartlett LLP is acting as its legal advisor.

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