March 6, 2008

 

JBS takes a break after US$1.9 billion in beef acquisitions

 

 

With the purchase of three more companies across the globe, Brazilian meatpacking giant JBS SA (JBSS3.BR) has ended a period of acquisitions and will now begin a consolidation process, JBS President Joesley Batista said Wednesday (March 6, 2008).

 

Late Tuesday, JBS announced that it will acquire three companies, two based in the US and one in Australia.

 

"When we announced the acquisition of Swift Co. last year, we said that we had started a process, and now, with these latest acquisitions, we are marking the end," said Batista in a conference call with analysts and reporters. "With the conclusion of those acquisitions, our focus will be inside the doors of the company; the market will not see any acquisition movement on our part."

 

According to the executive, the total cost of the three acquisitions will be at around US$1.9 billion.

 

JBS said it will acquire US-based Smithfield Food Inc.'s (SFD) beef business for US$565 million. The company said it will pay for the acquisition in cash. JBS also will increase the capital of Smithfield by US$200 million after Smithfield acquires the 50 percent of Five Rivers that it does not already own.

 

The Brazilian company also said it would acquire Kansas City-based National Beef for US$560 million, paying US$465 million in cash and US$95 million in stock. In addition, JBS will pay a net debt of US$410 million.

 

In addition, JBS will acquire the Australian-based company Tasman Group for approximately US$100 million. The Brazilian company will also pay an existing debt of US$50 million in the name of the Australian company.

 

"These acquisitions will be financed by US$1.5 billion in equities operations and US$400 million via debt assumption," said Batista.

 

JBS said it will issue shares in a private operation worth 2.55 billion Brazilian reals (US$1.5 billion).

 

With the acquisition, JBS will have annual revenue of around US$20 billion.

 

The latest acquisition was announced less than one year after JBS acquired Swift & Co., then the third-largest US processor of beef and pork, for US$1.46 billion.

 

Earlier this week, JBS completed the acquisition of a 50-percent stake in a company owned by Italy's Cremonini SpA (CRM.MI), called Inalca SpA. Details of the deal where announced in December, when JBS said it agreed to pay EUR225 million for the stake.

 

"I don't expect any antitrust problems with our acquisitions," said Batista. "Our focus now will be on gains from synergies. I expect to maintain all employees at all units."

 

However, in the US, Sen. Charles Grassley, R-Ill., reacted swiftly to the news of the JBS SA purchase of National Beef and Smithfield Foods' (SFD) beef division, voicing his concern over the "further consolidation in the (US) beef industry."

 

A news release issued Wednesday by Grassley's office said consolidation "will reduce market opportunities for family farmers and increase prices and provide less choice for consumers."

 

JBS would be the top cattle slaughtering country in the US if the mergers are completed.

 

JBS would be able to slaughter about 42,000 head of cattle on a daily basis in the US, including fed cattle and cows. Cargill Meat Solutions and Tyson Foods Inc. (TSN) can slaughter about 29,000 and 28,000 head, respectively, according to industry analysts.

 

Senate Agriculture Committee Chairman Tom Harkin, in a e-mail release, said he hopes the US Department of Justice scrutinizes the mergers.