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Hillshire Brands Agrees To Buy Pinnacle Foods In $6.6 Bln Cash, Stock Deal

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Hillshire Brands Co. (HSH) and Pinnacle Foods Inc. (PF) Monday said they have entered into a definitive agreement for Hillshire Brands to acquire all outstanding shares of Pinnacle Foods in a cash and stock transaction with a total enterprise value of $6.6 billion. The combination is expected to be immediately accretive to earnings.

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 implied purchase price, based on the ten day average closing price of Hillshire Brands as of May 9, is $36.02 per share. This represents an 18 percent premium to the price of Pinnacle Foods' common stock based on the closing price on May 9. Pinnacle said the transaction represents an implied premium of 80 percent since the company's initial public offering on March 28, 2013.

The transaction was unanimously approved by the boards of directors of both companies and is expected to close by September.

The total enterprise value includes Pinnacle Foods' outstanding net debt, which reflects an adjusted Earnings Before Interest, Tax, Depreciation and Amortization or EBITDA multiple of 9.6 times.

According to the companies, 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.

The combined company will have high quality brands, greater Diversification and enhanced Operational Platform. On a combined basis, the companies will have leading positions in key frozen, refrigerated and center of store grocery categories.

Sean Connolly, president and CEO of Hillshire, said, "The acquisition creates a leading branded food company with enhanced scale, reach, and capabilities while providing margin expansion and strong EPS accretion.''

By the end of the third year, Hillshire expects the combined company to achieve $140 million in estimated annual cost synergies, primarily from supply chain enhancements and the consolidation of overhead expenses. Annual earnings per share accretion is estimated in excess of 15 percent.

With this transaction, Hillshire will also acquire Pinnacle Foods' tax assets with an estimated present value of $390 million.

Hillshire has secured committed financing from Goldman, Sachs & Co. The company expects to maintain its current annual dividend of $0.70 per share and suspend its previously announced share buyback program.

Certain affiliates of Blackstone, which collectively hold around 51 percent of Pinnacle Foods' outstanding common stock, have entered into a voting agreement. Subject to its terms and conditions, they have agreed to vote their shares in favor of the deal.

The combined company will operate under the Hillshire Brands name and will be headquartered in Chicago, Illinois.

Sean Connolly will serve as president and chief executive officer of the combined company. Hillshire will appoint a representative from Blackstone to its Board upon the closing of the transaction.

HSH closed up 0.7 percent on Friday at $36.95, and advanced 4.2 percent in pre-market trading.

PF, which also settled up 0.7 percent, surged 20.4 percent in pre-market trading.

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