Fitch Views Pilgrim's Pride Takeover Bid for Hillshire as Neutral to JBS' Credit Quality

NEW YORK--()--Fitch Ratings views the takeover bid by Pilgrim's Pride Corporation (PPC) of The Hillshire Brands Company (Hillshire) as credit neutral for JBS S.A., which has a 75.3% stake in PPC. If completed under current terms, PPC would acquire Hillshire in a transaction valued at $6.4 billion. The transaction would enhance PPC's competitive position in branded food products and would expand JBS's global presence. At the proposed acquisition price, leverage would increase for about 12 months beyond Fitch's expectation for its 'BB-' foreign currency IDR of JBS.

PPC intends to finance the acquisition with debt that would be non-recourse to JBS. Its $45 per share offer represents a 25% premium to the volume weighted average price of Hillshire shares over the 10 trading days following the announcement by Hillshire of its intent to acquire Pinnacle Foods for a deal valued at $6.6 billion. PPC's transaction is based upon a 12.5x multiple relative to Hillshire's trailing adjusted EBITDA, including a $163 million termination fee payable to Pinnacle. It is anticipated that the proposed transaction would close in the third quarter of 2014 and would be subject to customary closing conditions and the termination of Hillshire's merger agreement with Pinnacle.

Positively, the transaction would create a leading branded, protein-focused company with strong earnings potential and complementary businesses. The combined companies' key brands would include Pierce, Wing Dings, Jimmy Dean, Hillshire Farm, Ball Park and State Fair - all of which are number one or number two in their respective markets. PPC's expertise in food service brand and supermarket deli would complement Hillshire's experience in retail.

On a pro forma basis, PPC and Hillshire would have combined LTM revenues of $12.4 billion and an EBITDA of $1.4 billion. These figures compare with PPC's LTM revenues and EBITDA of $8.4 billion and USD875 million, respectively. The combined entities would have an expected leverage ratio of 4.2x at closing. Fitch expects leverage to fall to less 3.5x within one year of the acquisition.

Fitch expects JBS's net debt-to-EBITDA ratio to increase on a pro forma basis to 4.1x from 3.0x. Fitch anticipates that the pace of deleveraging due to the strong free cash flow of the group to reduce JBS's consolidated leverage to around 3.5x by the end of 2015. This assumption does not include any potential cash proceeds from the potential IPO of JBS Food.

Fitch currently rates JBS as follows:

JBS S.A.:

--Foreign & local currency IDR 'BB-';

--Notes due 2016 'BB-';

--National scale rating 'A-(bra)'.

-Debentures 'A-(bra)'.

JBS USA LLC:

--Foreign and local currency IDR 'BB-';

--Term loan B facility due in 2018 'BB'

--Notes due 2020, 2021 'BB-'.

JBS USA Finance, Inc:

--Foreign and local currency IDR 'BB-';

--Bonds due 2020 'BB-';

--Notes due 2021 'BB-'.

JBS Investments GmbH

--Notes due 2023 and 2024'BB-'.

JBS Finance II Ltd:

--Foreign and local currency IDR 'BB-';

--Notes due 2018 'BB-'.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013);

--'Parent and Subsidiary Rating Linkage' (Aug. 5, 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Johnny Da Silva
Director
+1-212-908-0367
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Gisele Paolino
Director
+55 21 4503 2624
or
Committee Chairperson
Dan Kastholm
Managing Director
+1-312-368-2070
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Johnny Da Silva
Director
+1-212-908-0367
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Gisele Paolino
Director
+55 21 4503 2624
or
Committee Chairperson
Dan Kastholm
Managing Director
+1-312-368-2070
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com