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Hillshire Brands expands reach into refrigerated foods

The Hillshire Brands Company is about to expand its already robust portfolio of brands — which includes 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 — with the acquisition of Pinnacle Foods in a cash and stock transaction for approximately $6.6 billion.

Under the terms of the agreement, each share of Pinnacle Foods common stock will be exchanged for $18in cash and 0.50 shares of Hillshire Brands common stock. The total value of the transaction includes Pinnacle Foods’ outstanding net debt, which reflects an adjusted EBITDA multiple of 9.6x.

On a combined basis, the companies will have leading positions in key frozen, refrigerated and center of store grocery categories. 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.

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, 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 CEO 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, CEO 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.”

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, Ill. Sean Connolly, will serve as president and CEO 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 advisers to Hillshire Brands, and Skadden, Arps, Slate, Meagher & Flom LLP is acting as its legal adviser. BofA Merrill Lynch and Blackstone Advisory Partners are acting as financial advisers to Pinnacle Foods, and Simpson Thacher & Bartlett LLP is acting as its legal adviser.