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SLE : Such A Ride Gives You Goose Bumps

27 May 2014 by HCM

A fortnight ago, SLE (Hillshire Brands Co) announced to the market their intention to acquire Pinnacle Foods for an enterprise value of $6bln. With the prospects of more leverage looming, investors sent the 5 year risk premium through the roof and it traded all the way up from 90bps to 140bps in very healthy volumes. Today, Pilgrim's Pride Corp , a US unit of Brazilian meat company JBS SA , made an unsolicited $6.4bln takeover offer (or $45/share) for SLE in order to derail their expansion plan. The stock of SLE traded instantaneously at the $45 offer level (22% higher than the level where SLE’s stock settled post the Pinnacle deal announcement), indicating that investors believe in the success of this hostile take-over, and that they consider the Pinnacle deal dead. The press release indicated that the financing would be done through PPC, which seems to read that SLE would become an orphan reference entity. The reaction from the credit market was almost as fast, and the 5 year CDS of SLE traded all the way back to 90bps. It will eventually go lower once the deal is done and dusted.