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Gobble gobble

4 June 2014 By Kevin Allison

Voracious buyers are finding the meat on Sara Lee’s bones. The old consumer conglomerate broke itself up into meat-focused Hillshire Brands and coffee-roaster D.E Master Blenders 1753 in 2012 after spurning takeover offers worth about $12 billion, according to press reports at the time. It looked like a raw deal – until now.

Assume Sara Lee had accepted an offer in 2011, whether from private equity shop Apollo or the team of Brazilian beef giant JBS and Blackstone. Shareholders would have received a 33 percent premium to the company’s value before deal rumors started. Had they then put the cash into either an S&P 500 tracker fund or a basket of consumer stocks, they would have made a return of around 50 percent, leaving them with $18 billion.

That is only now starting to look possible from the path Sara Lee actually took. And it’s all thanks to the current cook-off for Hillshire between Pilgrim’s Pride and Tyson Foods, which both covet the porky margins from selling Jimmy Dean sausages and Ball Park frankfurters.

Pilgrim’s served up the latest offer on Tuesday, valuing Hillshire’s stock at $6.7 billion. That’s almost a 50 percent premium to its undisturbed share price. And it pegs Hillshire’s enterprise value at 40 percent above rival consumer staples companies, which trade at an average 10 times enterprise value to expected EBITDA, according to Thomson Reuters data.

Add in the $9.8 billion that the coffee unit went for last year, and shareholders still come up short – even though D.E Master Blenders fetched a 30 percent premium. There’s one more ingredient to throw in the pan, though: the $1.8 billion special dividend Sara Lee paid out to make the 2012 breakup more palatable.

That leaves investors looking at a potential dish of $18.3 billion, or perhaps $18.7 billion if priced-in expectations of a Tyson counteroffer come to pass. It’s hardly a knockout return. And in each scenario, of course, Sara Lee shareholders had to rely on either exuberant stock markets or hungry bidders. But in this case, at least, these fat premiums appear likely to save their bacon.


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