North America Loan: Tyson Foods’ US$8.2bn acquisition loan

IFR Review of the Year 2014
2 min read
Michelle Sierra

Tyson Foods emerged victorious in an intense battle to acquire Hillshire Brands, and its triumph over rival bidder Pilgrim’s Pride owed a lot to the influence of its acquisition financing.

The world’s second-largest meat processor after Brazil’s JBS, Tyson embarked on a high-stakes food fight at the end of May, moving to acquire the maker of Hillshire and Jimmy Dean sausages. However, just a few days later it looked like Pilgrim’s Pride, the second-largest US chicken processor, would prevail when it trumped Tyson’s offer.

Unperturbed, Tyson made a giant step towards ultimate success when it secured a fully underwritten US$8.2bn one-year financing led by Morgan Stanley and JP Morgan to back its offer. Pilgrim’s Pride lined up banks as well – tapping Bank of Montreal, Barclays, Rabobank and Wells Fargo to finance its bid – but, crucially, it did not obtain committed financing.

“Within 48 hours we were able to mobilise this committed financing that took financing conditionality and any conditionality around the process off the table,” said Anish Shah, global head of investment-grade loans at Morgan Stanley. “That immediately vaulted Tyson Foods into this preferred bidder status.”

With the financing in place, Tyson prevailed over Pilgrim’s Pride on June 8 with an increased offer valuing Hillshire at US$8.55bn including debt, up from US$6.8bn.

The US$8.2bn loan was syndicated among Tyson relationship banks with 100% participation, and was then partly taken out with longer-term loans and bonds. The loans included two term loans totalling US$1.9bn with three and five-year maturities that were sold to commercial banks, and a five-year US$600m tranche that was exclusively sold to the farm credit system via CoBank. That sell-down strategy provided Tyson with a differentiated investor base and broadened the pool of lenders.

The company took out the balance with US$3.2bn in unsecured bonds. Tyson also issued a further US$2.5bn in equity, broken up into both a mandatory convertible and a common equity offering.

The equity offering allowed the company to remain a high-grade issuer with lower financing costs. Tyson and its banks, however, had prepared a back-up structure. The bridge to equity structure allowed for an all-cash consideration while maintaining investment-grade ratings.

“This is an example where the financing structure, the risk judgement, and the capital markets integration facilitated Tyson winning this highly competitive M&A auction process,” Shah said.

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North America Loan 2014