Thursday, May 29, 2014

Shuffleboard, Chess and the Pilgrim, Hillshire Deal

Business strategy can learn much from chess, but in many ways it is considerably more complex.    In chess and in business, it is not enough to envision your next moves, you must anticipate your competitor's response to those moves and the other actions they are taking.  Thus an game theoretic approach is essential.

But the chess analogy only takes us so far.  In business, moves are made simultaneously, not sequentially as in chess.  In addition, the rules of the game (think regulations) are frequently changing and the space (chessboard) on which you play is constantly changing.  Moreover, your competition is not a single opponent but every player in your industry and every player in related industries.  

In today's news, the analogy to shuffleboard also seems appropriate, where a well placed move is slammed aside by a competitor.  Hillshire Brands had wanted to acquire Pinnacle foods for some time.  Recently it made a $4.3 billion bid for the company touting the synergistic possibilities of the deal.  

Those plans were disrupted today as Pilgrim Foods (owned by JBS)  offered to acquire Hillshire for $45. a share, a 25% premium to recent market prices.  However, the deal is contingent on Hillshire abandoning the Pinnacle deal.  The market prices of Pilgrim and Hillshire rose while those of Pinnacle declined.  

Also, of interest, is that Hillshire was aware of the interest by Pilgrim over two months ago.  In chess, white moves first and has a slight advantage.  One can only wonder if the Pinnacle deal was responsive and defensive, designed to thwart the revealed interest from Pilgrim.  

Unlike chess, the market continually appraises the value of the players.  The market price of Hillshire closed above the bid price of $45.  producing a negative speculation spread.  Apparently, the market expects further revisions to the Hillshire bid.  (Additional details are found in the Wall Street Journal.)

All the best,


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