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Stock Strategist

Is Hillshire Worth the Meaty Price?

A bidding war is sizzling for this meat-centric firm, but Tyson is grazing dangerous terrain.

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 Hillshire Brands (HSH) announced on June 1 that Pilgrim's Pride has increased its offer, proposing to acquire Hillshire for $55 per share in cash (enterprise value of $7.4 billion). We have increased Hillshire's fair value estimate to $55 per share as a result of the updated offer, and we will adjust our fair value accordingly in response to any future bids.

After years of operating inside a diversified consumer product firm, Hillshire Brands (the domestic meat business of the former Sara Lee) became an independent entity in 2012. We think the added focus inherent in operating as a meat-centric food business should ultimately serve the company and its shareholders well. Despite fierce competition, we think Hillshire's portfolio of branded items, and its Jimmy Dean brand in particular, should help Hillshire differentiate its products enough to generate solid returns on capital over time.

Ken Perkins does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.