The Hillshire Brands Co. and Pinnacle Foods Inc. 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.

"The combination of Hillshire Brands and Pinnacle Foods brings together two highly complementary organizations with strong brands, skilled employees and lean cost structures," said Sean Connolly, president and chief executive officer of Hillshire Brands. "The acquisition creates a leading branded food company with enhanced scale, reach, and capabilities while providing margin expansion and strong EPS accretion. 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. We believe our increased scale combined with a more diversified portfolio will deliver strong, consistent cash flows. This will enable us to continue to invest in our brands, enhance our portfolio, pursue value accretive M&A and deliver significant long-term value to our shareholders."

"This compelling transaction offers Pinnacle Foods shareholders an immediate premium and the opportunity to participate in the tremendous potential of the combined organization," said Bob Gamgort, chief executive officer of Pinnacle Foods. "The complementary portfolios and strategic fit of these two companies create significant value for the shareholders of both organizations. Our common passion for developing innovative products and maintaining close ties with our customers will position the combined entity to deliver outstanding benefits for employees, customers and shareholders."

The combined company will have a significantly expanded portfolio and enhanced operating capabilities, including:

• High Quality Brands.The new Hillshire Brands will enhance its strong category positioning through its robust brand portfolio of ten #1 or #2 brands, including: Jimmy Dean, Hillshire Farm, Birds Eye, Ball Park, Duncan Hines, Vlasic, Wish-Bone, State Fair, Sara Lee frozen bakery, Mrs. Butterworth's and Log Cabin, among others.
• Increased Scale and Presence in Frozen, Center Store and Refrigerated. The combined company's enhanced scale will significantly increase its presence with its key customer base. With leading brands and strong positions across the frozen, refrigerated and center store categories, the company will have the opportunity to further enhance its relationships with leading retailers. By extending Hillshire Brands' reach into the center store and Pinnacle Foods' reach into refrigerated, the transaction will create a platform with new revenue opportunities.
• Greater Diversification.A larger portfolio across a range of categories will deliver greater revenue and input cost diversification increasing the cash flow consistency of the combined company.
• Enhanced Operational Platform. The transaction will bring together two best-in-class operators with a shared low-cost operational approach and scalable infrastructure creating a stable platform for future expansion opportunities.

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.

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.

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.

Source: The Hillshire Brands Co.