Quick Thoughts – HSH, PF and PPC


This morning, PPC sought to derail HSH’s proposed acquisition of PF by announcing an unsolicited bid for HSH of $45 per share (all cash).

Putting aside the numbers for a moment, this deal makes much more sense to us if we were white boarding the small and mid-cap consumer staples landscape;

o   The last, independent bit of the old Sara Lee goes away, putting an exclamation point on a significant value creation exercise;

o   PPC gains more branded exposure, the holy grail of protein companies;

o   PF remains independent as a consolidator of center of the store brands.

Going back to our initiation piece on the consumer staples sector, HSH was one of the companies that we flagged as a potential target (HSH, POST, DF, WWAV, BEAM, MJN) and we think the transaction proposed by PPC makes much more sense for HSH shareholders rather than some effort to recreate the old Sara Lee conglomerate by using HSH as an acquisition vehicle.

PF, to our thinking, was a likely buyer of assets – a thesis that we think can represent significant value creation for PF shareholders, over time.

Some small possibility of an overbid exists, as HSH is an asset that TSN should covet, for much the same reason that PPC is eager to acquire it – less commodity exposure.

o   Having said that, we doubt that TSN would be willing to offer all cash, preferring to offer shares of stock whose price we believe is currently overvalued by the market.

HRL, TSN and maybe even BOBE (packaged food business within a restaurant company) are likely strong on this news and the temporary revaluation of protein-related assets by the market – our inclination is to fade the strength in TSN and HRLBOBE may actually (and, quite frankly, should be) a seller of those assets and is therefore potentially in a position to benefit from the stake that PPC has thrown in the ground.

HSH CEO Sean Connolly has done an exceptional job, in our view, of creating value for shareholders and represents one of the best executives within consumer staples.  We think the value-creation opportunity presented to him and the HSH Board by PPC represents a far too compelling option (when compared to the acquisition of PF) in terms of magnitude and duration for them to turn it down.

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