February 18, 2013

Smithfield Foods to form joint venture with Kansas City Sausage Company

Smithfield Foods, Inc. announced plans to form a 50/50 joint venture with Kansas City Sausage Company, LLC, including its sister company, Pine Ridge Farms, LLC, allowing the company to expand into the $4-Billion breakfast sausage and dinner sausage categories.

The transaction will be funded with cash on hand and is expected to close in the fourth quarter of fiscal 2013, subject to customary closing conditions, including regulatory approvals. Terms of the letter of intent were not disclosed. Smithfield expects the transaction to be immediately accretive to earnings.

"With our strong on-going focus on building our packaged meats business, and with 15% of the United States sow population, this joint venture is a logical fit for Smithfield. It will provide a growth platform in two key packaged meats categories - breakfast sausage and dinner sausage - and will allow us to expand our product offerings to our customers. These categories represent over $4 billion in retail and foodservice sales annually. This is a big opportunity for Smithfield to grow in two categories that have not historically been a focus for the company," said C. Larry Pope, president and chief executive officer of Smithfield.

"Kansas City Sausage is one of our largest live sow customers today. This joint venture will enable us to move raw material up the value chain from commodity live sows to branded packaged meats. We will merge Kansas City Sausage's low-cost, efficient operations and high-quality products with Smithfield's strong brands and sales and marketing team to continue to grow our packaged meats business. This combination should allow us to fill existing plant capacity and dramatically increase the joint venture's sales in a relatively short period of time," he continued.

With sales of approximately $200 million, Kansas City Sausage is a leading US sausage producer and sow processor. The company has operations in Des Moines, Iowa and Kansas City, Missouri. In Des Moines, the company produces premium raw materials for sausage, as well as value-added products, including boneless hams and hides. The Kansas City plant is the newest and most modern sausage processing facility in the US and is designed for optimum efficiency to provide retail and foodservice customers with high-quality products.

John Stadler, founder and chairman of Kansas City Sausage, commented on its partnership with the US$13-billion global food company and the world's largest pork processor and hog producer. "We are excited to partner with the largest packaged pork company in the U.S. to grow our business by joining our state of the art operations and expertise in sow processing with Smithfield's portfolio of leading consumer brands and sales and marketing capabilities. We believe that this joint venture will create significant value for both Kansas City Sausage and Smithfield."