August 21, 2006

 

Pilgrim's Pride makes US$1 billion offer for Gold Kist

 

 

Pilgrim's Pride Corp, the US's second-largest chicken processor, has offered US$1 billion for a takeover of Gold Kist Inc, the country's third-biggest chicken company.

 

If successful, the combined entity would be large enough to challenge the top-dog of the US chicken business, Tyson Foods.

 

However, the deal may fall through as Pilgrim's Pride conceded it has been making similar overtures to Gold Kist and being snubbed by it for two years.

 

Gold Kist, which controls 9 percent of the US chicken market, is mulling the offer. The company was a farmer-owned cooperative before going public in October 2004, an still counts chicken farmers among its owners.

 

Pilgrim's Pride, based in Pittsburg, Texas, holds 16 percent of the US chicken market. The company had announced the news to beat a deadline for submitting director nominees at the Gold Kist annual shareholders meeting.

 

Pilgrim's Pride's US$20-a-share proposal, represents a 55-percent premium to Gold Kist's closing price of US$12.93 a share on the Nasdaq Stock Market. The company would also assume US$144 million of Gold Kist debt.

 

The company's takeover offer comes at a time when bird-flu problems in foreign markets have caused steep losses for the US industry and slashed the stock prices of US chicken companies.

 

Even top chicken processor Tyson was not spared from the effects of the disease as it announced a spate of job cuts and cost cutting measures following million dollar losses.

 

Gold Kist, however, was hit particularly hard, with its shares having fallen more than 40 percent since the summer of 2005, the height of the chicken boom.

 

While Pilgrim's Pride did not escape unscathed and suffered a drop in share prices in similar fashion, its fall was a less severe 28 percent. Still, the cash-rich company said it has been assured by advisors it would be able to stomach the takeover.

 

Foreign demand for US poultry took a hit earlier this year when European consumers steered clear of chicken after the discovery of the Asian bird flu there. The US chicken industry, which exports 15 percent of its output, have struggled to reduce the meat glut by cutting domestic production when exports took a dive.