With the merger and acquisition market really heating up as of late, the Street has been sending mixed signals to the shareholders of the acquirers.

In several instances, the market has looked kindly on the move and rallied the share price of the company being acquired, as well as the share price of the acquirer.

However, this is certainly not the case with respect to the Tyson Foods (NYSE: HSH) after a prolonged bidding war. In the end, Tyson ended up purchasing Hillshire at nearly a 70 percent premium to its May 23 closing price ($37.02).

A History Of Buying Competitors

Growing by acquisition is nothing new to the company. In 2001, Tyson acquired IBP Inc, which at the time was the largest beef packer and number two pork processor in the U.S., for $3.2 billion in stock and cash.

And over the next several years, Tyson has made numerous acquisitions in the food industry -- including Hudson Foods Company, Washington Creamery, Prospect Farms, Wilson Foods, Honeybear Foods as well as several others.

Related: Takeover Whispers Add To Achillion Pharmaceuticals' Momentum

The company has not only targeted other public companies, but private companies as well. In June 2013, Tyson acquired the assets of Circle Foods. Also, in January this year, it acquired the assets of Bosco's Pizza. Of course, these acquisitions were much smaller in size, and with few competing bids they likely added to the bottom line for the company fairly quickly.

Tyson Shifts its Focus

In contrast, the takeover of Hillshire was only completed after a prolonged bidding war with Pilgrim's (NASDAQ: PPC). In a complicated series of moves, involving Pinnacle Foods originally being bid for by Hillshire, Tyson announced a cash offer for Hillshire on May 29 for $6.13 billion, or $50.00 per share.

Hillshire, which had already appreciated from $37.00 to $45.00 from the possible synergies of the Pinnacle Foods acquisition, added another $8.00 to close at $52.79 on May 29. Obviously the Street believed the $50.00 price would not be sufficient, and it traded at nearly a $3.00 premium to the Tyson offer.

Only two days later, Pilgrim's upped the ante by offering $55.00 for the company. Still, the Street was not satisfied with the proposed offer -- as Hillshire shares closed at $58.65 on June 3. Finally, on June 9 Tyson ended the bidding war for Hillshire and offered to pay $63.00 per share.

Not only did the Street force Tyson to buy the top in Hillshire, it has also put a long-term top in its share price. After just missing its all time high ($44.24) on May 29, reaching $44.00, the issue has swooned to the $35.00 level in only 12 trading sessions.

The higher the company bid for Hillshire shares, the lower its own share price went. Even after the bid was finalized on June 9, as Tyson went from $40.12 to $37.50 in that session, it has shed another 2.5 points and on Monday threatened to breach the $35.00 level for the first time since December of 2013.

Long-term Implications For Tyson Share Price

When it takes an issue nearly seven months to rally from $31.45 to $44.24 and it gives much of it back in a few weeks, one thing is for certain: it is not going back to $44.24 anytime soon.

Long-term and or institutional investors have exited the issue. This is supported by the spikes in volume that took place as the deal was finalized on June 9 and 10. Perhaps these investors believe the company overpaid heavily for its latest acquisition, and that it may take longer and be more costly than the company estimates to integrate the two companies.

Also, all the “buy the dippers” that were waiting for a pullback in Tyson are now underwater -- and if the $35.00 level is breached, it may initiate another wave of selling. The selling may come from these shorter-term players hitting the exit button, or an exodus by institutions that were waiting for a rebound to sell their shares. Of course, any rebound in the issue will have both parties competing for bids and both may fall prey to High Frequency Traders, who will ferret out any sizable offers and attempt to trade ahead of those orders.

Every merger and acquisition has its own set of circumstances that will dictate the future price movement of the acquirer. However, investors should take note that if a bidding war ensues for a company, the winner of the bidding war can actually turn out to be the loser. As in the case of Tyson Foods, the street is saying the company may have just overpaid.

graphedit1_0.png

chartedit1_0_0.png

Related Articles
  1. Budgeting

    Plated Review, Is It Worth It?

    Take a closer look at the ready-to-cook meal service, Plated, and learn how the company can help you take the hassle out of home cooking.
  2. Investing News

    How China's Economy is Now Like America's

    China's economy could take the global economy down with it; why that might be good news in the grand scheme.
  3. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  4. Fundamental Analysis

    South Korea - King of Exports

    Read about one the most important and successful exporting countries in the world, and learn more about the types of products it exports.
  5. Investing News

    Volatility Vexed? See What the Experts Are Saying

    Volatile times lead to a diversity of opinions on where the market is headed. Here are takes from five investing luminaries.
  6. Investing Basics

    The January Barometer: Is it Still Relevant?

    The January Barometer has been historically accurate. Will that be the case in 2016?
  7. Investing News

    The 8 Highest Grossing Movies of 2015

    Count down the most popular films at the American box office in 2015, and learn how much they earned in the domestic and worldwide markets.
  8. Economics

    Why the Chinese Economy Impacts the U.S. So Much

    Here's how the Chinese economy, the second-largest in the world, impacts the United States.
  9. Investing News

    Why You Should Be Buying Stocks, Not Going to Cash

    Hedge fund managers are buying up the shares of big companies. What do the managers know that we don't?
  10. Economics

    Why Commodities Aren't to Blame for Market Malaise

    Commodities are taking the brunt of the blame for poor investment performance. Are they the real villain?
RELATED FAQS
  1. What is the long-term outlook of the metals and mining sector?

    An industry agency council was established by the World Economic Forum in 2014 to serve as an advisory board on the future ... Read Full Answer >>
  2. What is the railroads sector?

    The railroads sector is comprised of publicly traded stocks for companies that operate railroad tracks and/or trains. Railroad ... Read Full Answer >>
  3. Who are Amgen Inc.'s (AMGN) main competitors?

    Biotech giant Amgen Inc (AMGN) bills itself as one of the first biotechnology firms. It was founded in 1980 and has grown ... Read Full Answer >>
  4. What's the most expensive stock of all time?

    Back in late August 2012, Apple’s (AAPL) stock price reached nearly $700 per share. The stock has since split but has yet ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center