June 18, 2010

Smithfield makes offer to acquire Butterball



Smithfield Foods has made an offer to purchase its joint venture partner's 51% ownership interest in Butterball LLC and its partners' related turkey production assets for approximately US$200 million.

In accordance with Butterball's operating agreement, Smithfield's partner may either accept the offer to sell or be required to purchase Smithfield's 49% interest and its related turkey production assets.

The company expects to conclude the buy or sell decision no later than September 2010 and close before the end of the calendar year. If Smithfield is the buyer, it will be required to retire Butterball's debt obligations, which totalled about US$215 million as of May 2, 2010.

Additionally, if Smithfield is the buyer, the company said it anticipates that a significant amount of capital investment and marketing will be necessary to increase Butterball's earnings potential.

"This business (Butterball) did just fine as long as it didn't require cash from the partners," said Smithfield President and CEO C. Larry Pope. "It needs to be restructured operationally. That takes capital, and we've not been able to secure the capital from either partner to make it work. We're not prepared to go forward in a mediocre fashion. We're not willing to accept commodity-style results any longer."

Smithfield believes its current liquidity position will be sufficient to finance this transaction. However, the company will evaluate capital alternatives at the appropriate time.

"Purchasing the remaining ownership interest in Butterball will afford Smithfield the opportunity to build the Butterball brand unconstrained by the restrictive terms of our current investment agreement and disagreements with our partner in respect to the development of the business," said Pope in a news release. "On the other hand, if we are the seller, we will have exited the turkey business at a price that we believe fairly values the operations. Either way, we will be pleased with the outcome."