According to Fitch Ratings, the ratings of Tyson Foods, Inc. (Tyson;
NYSE: TSN) are currently unaffected by Tyson's June 8, 2014 unilateral
binding offer to acquire The Hillshire Brands Co. (Hillshire; NYSE: HSH)
for $63 per share in cash or approximately $8.6 billion including
Hillshire's net debt. The bidding process was concluded and Pilgrim's
Pride Corp. today withdrew its proposal to acquire Hillshire. Final
ratings are subject to signing of a definitive agreement to acquire
Hillshire. A list of Fitch's ratings on Tyson is at the end of this
press release.
Tyson's offer will remain in effect until the earlier of the termination
of Hillshire's agreement to purchase Pinnacle Foods, Inc. (Pinnacle;
NYSE: PF) or Dec. 12, 2014. Tyson's proposal is about 16x Hillshire's
$545 million of LTM EBITDA as calculated by Fitch and represents a 69%
premium over Hillshire's stock price on May 9, the day prior to
Hillshire's announced agreement to acquire Pinnacle. Fitch believes the
proposed transaction is strategically sound but views the multiple as
rich versus those of historical food industry transactions.
Fitch intends to review Tyson's ratings upon signing of a definitive
agreement, as mentioned earlier, and receipt of more clarity on
transaction financing, given the significant 26% increase in Tyson's
initial bid of $50 per share or $6.8 billion on May 29, 2014. Tyson's
pro forma leverage assuming 100% debt financing would approximate 4x.
However, Fitch views Tyson's plans to finance a portion of the potential
transaction with equity in order to maintain investment grade ratings
favorably. Tyson's ratings will take into consideration the proportion
of equity used to finance the purchase as well as Fitch's view regarding
the pace of deleveraging and Tyson's ability to garner its projected
$300 million plus of synergies.
RATING SENSITIVITIES
Future developments that may, individually or collectively, lead to a
downgrade include:
--A substantial increase in leverage where total debt-to-operating
EBITDA is sustained above 2.5x beyond 12-24 months of transaction
closing;
--The absence of material progress in deleveraging due to aggressive
financial policies associated with share repurchases or additional
acquisitions, and/or a severe downturn in operating results.
Future developments that may, individually or collectively, lead to an
upgrade to 'BBB+' include:
--An upgrade is not anticipated in the near term given Tyson's
demonstrated willingness to engage in large-size acquisitions and
Fitch's view that the transaction with Hillshire has a high probability
of completion.
Fitch currently rates Tyson as follows:
--Long-term Issuer Default Rating (IDR) 'BBB';
--Short-term IDR 'F2';
--Unsecured bank facility 'BBB';
--Senior unsecured notes 'BBB'.
The Rating Outlook is Stable. At March 29, 2014, Tyson had approximately
$1.9 billion of total debt.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (May 2014);
--Parent and Subsidiary Rating Linkage Fitch's Approach to Rating
Entities within a Corporate Group Structure (August 2013);
--Fitch: Meat Processor Growth Needs Drive Hillshire Bidding War (June
2014)
--Fitch Affirms Tyson's Ratings on Offer to Buy Hillshire; Outlook
Revised to Stable (May 2014)
--Fitch Revises Rating Watch on Hillshire's Ratings to Evolving After
Takeover Bids (May 2014)
--Fitch Downgrades Hillshire to 'BB' on Acquisition Annoucement; Places
Ratings on Negative Watch (May 2014);
--Fitch Views Pilgrim's Pride Takeover Bid for Hillshire as Neutral to
JBS' Credit Quality (May 2014);
--Fitch Upgrades Tyson's S-T IDR to 'F2' and Affirms L-T IDR at BBB;
Outlook Positive (January 2014)
Applicable Criteria and Related Research:
Parent and Subsidiary Rating Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
WEBSITE.
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