Farallon Capital establishes a new position in Hillshire Brands

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Farallon Capital and Hillshire Brands

Farallon Capital initiated new positions in Covidien (COV), Hillshire Brands (HSH), and Allergan (AGN). The fund sold its positions in Time Warner Cable (TWC), Dollar General (DG), and SiriusXM Holdings (SIRI). The fund added to its positions in Safeway (SWY) and Coca-Cola Enterprises (CCE), while it lowered its stake in Charter Communications (CHTR) and eBay (EBAY).

Farallon took a new position in Hillshire Brands Co. (HSH) that accounts for 2.74% of Farallon’s 2Q portfolio.

HSH

Company overview

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The Hillshire Brands Company is a manufacturer and marketer of branded convenient foods. Hillshire Brands’ portfolio includes iconic brands like Jimmy Dean, Ball Park, Hillshire Farm, State Fair, Van’s, Sara Lee frozen bakery, and Chef Pierre pies, as well as artisanal brands like Aidells, Gallo Salame, and Golden Island Jerky. The company organizes itself into two business segments: retail and foodservice/other.

The retail segment sells a variety of packaged meat and frozen bakery products to retail customers in North America and it accounted for 73% of total sales in fiscal 2014. The company sells to supermarkets, warehouse clubs, and national chains. Generally transactions occur through Hillshire Brands’ own sales force and outside brokers. Walmart and its affiliates were Hillshire Brands’ largest customer in fiscal 2014.

The foodservice/other segment sells a variety of meat and bakery products to foodservice customers in North America. Sales go through the foodservice channel to broadline foodservice distributors, restaurants, hospitals, and other large institutions.

Hillshire sees sales growth in 4Q14

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Hillshire reported fiscal 4Q14 net sales of $1.1 billion, up 10.7% in comparison to the corresponding period last year. The company attributed gains to the positive price mix in both the business segments that more than offset volume declines resulting largely from pricing actions. The sales growth rate also benefitted from a soft quarter in the prior year and the later timing of the Easter holiday this year.

Hillshire’s retail division saw net sales increase 8.5%, driven by higher volume and favorable prices, while the food service division’s sales surged 17% as commodity-driven pricing offset a decline in volume.

Hillshire said sales in the convenience store channel have been strong, as its new Jimmy Dean roller grill sausages continue to perform well. The bakery grew behind new innovations in convenient pre-sliced Luxe Layer pies.

Tyson Foods acquires Hillshire

On August 28, 2014, Tyson Foods completed its merger with Hillshire Brands, a transaction that positions Tyson Foods as a clear leader in the prepared foods business. This merger will generate synergy savings of $225 million in fiscal 2015 and more than $500 million by fiscal 2017.

The all-cash transaction is worth approximately $8.55 billion, including Hillshire Brands’ outstanding net debt. A release noted that the merger will create a complementary portfolio of well-recognized brands, including Tyson, Wright, Jimmy Dean, Ball Park, State Fair, and Hillshire Farm. In particular, the strength of Hillshire Brands’ products in the breakfast category will allow Tyson Foods to capture opportunities in the attractive and fast-growing segment.

The next part of the series discusses Farallon’s new position in Allergan.

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