Tomahawk, WI 08/13/2014 (Basicsmedia) – Acquisition of competition for companies operating in grocery stores section continues to be the best play according to CNBC’s ‘Mad Money’ analyst, Jim Cramer. Organic growth has been the main challenge in the space with most companies languishing on zero growth levels. Tyson Foods, Inc. (NYSE:TSN) in a bid to counter increased competition in the space, as well as, low organic growth did itself justice by out-bidding JBS SA’s Pilgrim’s Pride Corporation (NASDAQ:PPC) in the race to acquire Hillshire Brands Co (NYSE:HSH) for approximately $7.7 billion.
“[…] But it is becoming more and more difficult for them to generate growth organically; that’s what we really want at Wall Street despite the well-known brands. That’s why am a huge believer that the companies operating in what we call the center ails of grocery stores have no choice, but to make major acquisitions because that is the only way they can grow their business in a meaningful fashion,” said Cramer.
The package foods industry where Tyson and Hillshire Brands Co (NYSE:HSH) are the key player has drastically changed with time, as a result of increased players in the space considerably resulting in increased competition. Tyson Foods, Inc. (NYSE:TSN) the largest meat producer in the U.S opted to buy Hillshire brands as a way of complimenting its product portfolio with brands like Jimmy Dean Sausages and ball park hot dogs instead of having to compete directly with the same.
“Over the last 12 months; the entire packaged foods space has been incredibly promotional; they are trying to do whatever they can do, to drive higher volume, because they know Wall Street wants higher volumes. But here is the thing, it is not working. [..] The package food companies are facing one big problem here, and it is the worst possible problem a business can have it is, competition,” said Cramer.
Tyson Foods, Inc. (NYSE:TSN) expects to increase its margins in dessert and lunch meats categories at the back of the Hillshire deal. The deal is also expected to bolster Tysons Economies of scale as a result of more customers and shelf space. Cost savings is also expected to arise as a result of the merger.