What Tyson’s Bid for Hillshire Means for Food Industry

Source: Thinkstock

Source: Thinkstock

Thursday morning we learned that Hillshire Brands (NYSE:HSH) received a second takeout offer from Tyson Foods (NYSE:TSN) after receiving one on Tuesday from Pilgrim’s Pride (NASDAQ:PPC). Tyson offered Hillshire shareholders $50 after Pilgrim’s Pride offered $45/share.

This bidding war has generated a lot of investor enthusiasm from traders who see the potential benefits that consolidation in the packaged food industry can bring about. As I pointed out on Monday, packaged food companies are also technology companies. They used patented techniques in order to improve farming and processing efficiencies, and it is for this reason that a company such as Hillshire is generating so much interest.

I also pointed out that as the industry consolidates there are fewer companies to compete in the space, and that means that the companies that are remaining have added pricing power. Since they also have the patented techniques necessary to improve efficiencies, this means that it is less likely that a smaller competitor, or even a larger new competitor can enter the market competitively.

It isn’t the only one. The bidding war for Hillshire comes shortly after Hillshire made an offer for Pinnacle Foods (NYSE:PF). Furthermore, about a year ago, a Chinese company — Shuanghui International — bought out America’s largest pork producer — Smithfield Foods.