Tyson Foods Inc. of Springdale announced Tuesday a $4.2 billion deal to purchase all outstanding shares of AdvancePierre Foods Holdings Inc. of Cincinnati, a national producer and distributor of value-added, ready-to-eat sandwiches, sandwich components, entrées and snacks.
The deal, the company's biggest since its $8.5 billion purchase of Hillshire Brands of Chicago in 2014, adds to Tyson Foods' portfolio of branded and value-added packaged foods, a key area of the company's strategic plans.
"Tyson is focused on its new strategic intent to sustainably feed the world with the fastest growing portfolio of protein packed brands," Tyson CEO Tom Hayes said. "AdvancePierre has a portfolio of products and categories that Tyson does not have."
AdvancePierre, which went public last year (NYSE: APFH), reported annual revenue of $1.6 billion in 2016 and has about 4,500 employees. The company's history dates the founding of Pierre Foods in 1946.
The deal includes $3.2 billion in equity value and $1.1 billion in assumption of AdvancePierre debt. Tyson Foods (NYSE: TSN) is paying $40.25 per share for the company, a 32 percent premium to AdvancePierre's April 5 closing price. Approved by both companies' boards, the transaction is set to close in the third quarter.
All About Growth
In a conference call, Hayes said the deal marks his first acquisition since becoming CEO. He said the company looks for acquisitions that add either new brands, new categories or new geographical exposure to its portfolio, and AdvancePierre adds all three, which is "right where we want to be."
Hayes specifically mentioned AdvancePierre's Barber Foods brand. AdvancePierre acquired the brand, based in Portland, Maine, in 2011. It specializes in prepared chicken meals.
Hayes said the merger will allow the combined company to grow faster than the individual companies would have been able to.
"This transaction is about growth," Hayes said. "We believe Tyson is the right home for AdvancePierre to continue to expand its distribution footprint and nurture even greater brand loyalty for its products," he said. "We are focused on driving growth and driving growth fast and profitably. We believe Tyson and AdvancePierre are a natural strategic fit to accomplish this objective."
During the call, Hayes was asked why Tyson Foods didn't acquired AdvancePierre when it was for sale a couple of years ago for a lower price. Hayes said the timing was a combination of Tyson's new leadership team, unveiled in February; having to organize the company's new strategy; and AdvancePierre becoming a better company.
Hayes said AdvancePierre's leadership has grown the company and implemented a quality operational model.
"The timing is right," Hayes said. "Timing is everything in a lot of these deals."
Fresh Foods
In a news release, Tyson Foods said AdvancePierre's product portfolio fits well with its strategy to expand its fresh prepared foods offering.
"The collective portfolio of sandwiches, sandwich components, entrees and snacks will extend Tyson's core strength into the fast-growing convenience and retail perimeter with solutions that span all-day parts," the company said. "The Barber Foods brand of value-added chicken products has a strong heritage in both retail and foodservice channels and we look forward to building upon its foundation of quality."
The company said the deal would result in cost synergies of about $200 million, fully realized within three years.
"Cost synergies will be created by a consolidated manufacturing footprint, procurement efficiencies, distribution network consolidation, and addressing redundant sales and marketing functions and duplicative corporate overhead," the company said.
In the conference call, Hayes declined to give specifics about where the $200 million in savings would come from because the exact accounting hasn't been finalized.
"We feel real good about the $200 million," Hayes said.
AdvancePierre President and CEO Christopher D. Sliva said combining the two firms will allow both to realize greater opportunities.
"This combination will allow AdvancePierre to accelerate its growth and broaden its distribution network by leveraging Tyson's existing distribution infrastructure and go-to-market capabilities," Sliva said. "Importantly, the transaction also offers compelling and certain value for our shareholders and will provide long-term benefits for our team members and customers."
Tyson Foods announced the acquisition the morning after saying it would explore the sale of three of its brands: Sara Lee Frozen Bakery, Kettle and Van's.