Tyson Foods Inc (NYSE:TSN) is exploring a bid for Michael Foods Group Inc, a deal that would combine one of the world's largest chicken processors with a large distributor of egg and dairy products, according to three people familiar with the matter.
A potential deal for Michael Foods, which is seen worth between $2 billion and $2.5 billion according to the people, would place Tyson, the nation's largest meat producer, into an adjacent category within poultry and protein.
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Michael Foods, the egg and dairy products producer owned by Goldman Sachs Group Inc's (NYSE:GS) private equity unit, is in the early stages of finding a buyer, and Tyson may ultimately choose not to move forward with an offer, the people cautioned.
Michael Foods is working with Goldman Sachs' investment banking unit and Bank of America Merrill Lynch (NYSE:BAC) on a potential sale, Reuters reported in December.
The sources declined to be named because the matter is private. Tyson Foods and Michael Foods declined to comment. A Goldman Sachs spokeswoman did not immediately respond to a request for comment.
Minnetonka, Minnesota-based Michael Foods produces and distributes products including specialty eggs, refrigerated potatoes, cheese and other dairy products.
Tyson Foods, which has a market cap of around $12 billion, has traditionally shunned large acquisitions. The last major acquisition it made was its 2001 purchase of IBP Inc for $3.2 billion, which helped transform the company into the world's largest meat producer and processor.
A tie-up between Tyson and Michael Foods would bring synergies on the poultry side of the business as both companies raise chickens.
Goldman Sachs Capital Partners bought Michael Foods from private equity firm Thomas H. Lee Partners LP in 2010 for around $1.7 billion. Thomas H. Lee retained an ownership stake of about 20 percent as part of the transaction.
In the nine months ending September 28, Michael Foods posted adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of $188 million, up 7.2 percent from the same period last year.
For the full 2013 year, the company was on track to report EBITDA of around $250 million. Michael Foods is hoping to fetch roughly 9 or ten times that amount, according to the people familiar with the matter.