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Pinnacle Foods (NYSE: PF) Stock Pops 15% on $4.3 Billion Hillshire Deal By Diane Alter

Pinnacle Foods Inc. (NYSE: PF) stock jumped 15% Monday when the packaged foods company agreed to be acquired by Hillshire Brands Co. (NYSE: HSH). Hillshire will buy Pinnacle for roughly $4.3 billion in cash and stock. Investors sent Pinnacle shares up to $36.22 in morning trading after closing at $30.45 Friday. More than 11.5 million shares changed hands by noon, compared to Pinnacle's average daily volume of 510,000 shares. The post Pinnacle Foods (NYSE: PF) Stock Pops 15% on $4.3 Billion Hillshire Deal appeared first on Money Morning - Only the News You Can Profit From .

Pinnacle Foods Inc. (NYSE: PF) stock jumped 15% Monday when the packaged foods company agreed to be acquired by Hillshire Brands Co. (NYSE: HSH). Hillshire will buy Pinnacle for roughly $4.3 billion in cash and stock.

Investors sent Pinnacle shares up to $36.22 in morning trading after closing at $30.45 Friday. More than 11.5 million shares changed hands by noon, compared to Pinnacle's average daily volume of 510,000 shares.

Pinnacle Stock Under terms of the deal, Pinnacle shareholders will receive $18 in cash plus half a share of Hillshire Brands for each Pinnacle share held. The combined amount represents a near 20% premium to Pinnacle's closing price on May 9. Including Pinnacle's debt of roughly $2.5 billion, the transaction value jumps to about $6.6 billion.

The deal handsomely boosts Hillshire presence in the frozen food aisle, making it the No. 3 player in that market segment. And it heartily expands Hillshire's overall reach in supermarkets.

Pinnacle's grocery brands include legendary products such as Birds Eye frozen foods, Mrs. Paul's frozen seafood, Log Cabin syrup, Celeste pizza, Duncan Hines baking mixes and frostings, and Vlasic pickles. Hillshire's brands include Hillshire Farm, Hungry Man, Jimmy Dean, and State Fair brands of deli meats, sausages, and hot dogs. Also under the Hillshire umbrella is the Sara Lee line of frozen desserts.

The companies' complementary brands and similar culture should help the merger proceed seamlessly.

The deal is expected to immediately add to earnings. Hillshire projects the combined company will achieve annual earnings per share growth of more than 15%. Also expected is $140 million in annual cost savings, stemming from supply-chain improvements and expense consolidations.

"The combination on Hillshire Brands and Pinnacle Foods brings together two highly complementary organizations with strong brands, skilled employees and lean cost structure," Sean Connolly, president and chief executive officer of Hillshire Brands, said in a press release. "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."

While Pinnacle (PF) stock soared on the deal, Hillshire shares weren't doing as well...

HSH stock shed more than 6% midday to $34.22. Analysts had been speculating that Hillshire would be taken over in a sizable deal - perhaps by Hormel Foods Corp. (NYSE: HRL) - instead of being the one buying.

Hillshire and Pinnacle, both newly public, have always seized M&A opportunities - one of the reasons their stocks have been on a roll. Pinnacle (PF) stock is up 27% in the past year.

Hillshire was formed in 2012, when Sara Lee split into two publicly traded companies. The other half is D.E. Master Blenders 1753, a European coffee and tea business, which just last week reported it will merge with Mondelez International Inc. (Nasdaq: MDLZ).

Since the break-up, Hillshire has been busy bulking up its presence and product pipeline.

The Pinnacle buy is Hillshire's third purchase in less than a year. Last month, the Chicago-based company agreed to buy Van's Natural Foods for some $165 million. In September, the company bought gourmet jerky maker Golden Islands for $35 million.

The two purchases are too new to show meaningful impact on Hillshire's profits for 2013. Nonetheless, Hillshire booked robust revenue of $4 billion for all of last year.

Pinnacle, meanwhile, bought Unilever NV's (NYSE ADR: UN) Wish-Bone salad dressing unit for $580 million in August 2013.

The deal came just five months after Pinnacle went public on March 28, 2013, at $20 per share - the high end of the $18 to $20 range. The IPO was widely successfully thanks in part to its $0.18 per share quarterly dividend, giving the stock a 3.8% annual yield. That was handily above the Standard & Poor's 2.2% yield at the time. Eight months later, Pinnacle fattened its quarterly payout 16.7% to $0.21 per share.

The Parsippany, N.J.-based company serves more than 85% of American households and holds the No. 1 and No. 2 market position in 10 of 13 groceries categories in which it competes, according to a company statement. Revenue last year totaled $2.5 billion.

Both Pinnacle and Hillshire have been named as possible bidders for Unilever's Ragu pasta sauces unit, which could fetch some $2 billion.

Next: Healthcare M&A activity has been hot in 2014, with 239 deals valued at $49.6 billion in the first quarter alone. But this gigantic deal on the horizon would be a significant shot in the arm for one multinational pharmaceutical giant. Here's how investors can win, too.

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The post Pinnacle Foods (NYSE: PF) Stock Pops 15% on $4.3 Billion Hillshire Deal appeared first on Money Morning - Only the News You Can Profit From.

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