February 23, 2005

 

 

US Smithfield plans beef expansion, eyes acquisition of domestic rival

 

US company Smithfield Foods Inc., the world's biggest hog and pork producer, plans to expand its beef business, probably by acquiring a rival, its Chief Executive revealed

 

Smithfield, also the world¡¯s fifth-largest US beef producer, aims to increase its market share in the business, adding that it has an opportunity to make a major acquisition in the US.

 

Smithfield's beef production has been expanding during the past four years to reduce the company's reliance on the pork business and to compete with Tyson Foods Inc., a poultry producer that acquired IBP Inc. in 2001 to become the world's largest beef company.

 

Possible targets for Smithfield may be Greeley, Colo.-based Swift & Co., the third-largest U.S. beef processor, and Kansas City, Mo.-based National Beef Packing Co., which is No. 4.

 

No mention was made of companies that Smithfield might consider for acquisition. A spokesperson for the company said that Smithfield might been keen to acquire Swift if the company were for sale.

 

Smithfield last week agreed to merge its cattle-feedlot business into a joint venture with ContiGroup Cos. to create the largest US supplier of livestock to beef producers. The feedlots will supply about 80 percent of the cattle slaughtered by Swift, with the rest going to National Beef.

 

Tyson reduced output at five plants last month after losses in the quarter that ended Jan. 1. Swift and National Beef also have reduced beef production.

 

Smithfield expanded production in 2003 by acquiring the money-losing pork business from bankrupt Farmland Industries for US$367.4 million.

 

Last week, Smithfield said its third quarter profit nearly doubled on strong pork demand and higher hog prices.

 

The company has said that it is not interested to acquire the US$1 billion European meat businesses of Sara Lee Corp., which said earlier this month that it planned to sell the unit this year. Smithfield has cited lower labor and grain costs in eastern Europe as good potential for expansion rather than acquiring Sara Lee¡¯s assets.

 

Smithfield in November bought meat processors in Poland and Romania for a combined US$83 million to expand into eastern Europe.

 

In June, Smithfield bought Jean Caby of France for US$33.2 million.

 

Shares of Smithfield fell 38 cents, or 1.1 percent, to US$32.98 in New York Stock Exchange composite trading. The stock has gained 32 percent in the past year.