September 17, 2009

The merger with Brazilian beef company Bertin and the acquisition of US chicken processor Pilgrim's Pride Corp. will make local meatpacker JBS SA the world's biggest producer of animal protein, surpassing Tyson Foods Inc., the company claimed Wednesday (Sept 16).

 

The company has projected combined revenues of US$28.7 billion, beating Tyson's US$28.1 billion registered in 2008, JBS Chief Executive Joesley Mendonca Batista said during a conference call.

 

Earlier Wednesday, JBS announced a merger with its local rival Bertin, creating the world's largest beef producer. The all-stock transaction will leave JBS with a 60 percent stake and Bertin with a 40 percent stake.

 

Meanwhile, it also announced that US chicken processor Pilgrim's Pride Corp. had accepted its bid for control of the company. Pilgrim's Pride had agreed to sell 64 percent of new common stock to JBS for $800 million cash, and the deal will total US$2.8 billion once the debts of the bankrupt company are included.

 

The Pilgrim's Pride deal is the company's first major experience with poultry, but the deal makes it the world's No. 2 in the sector.

 

Investors applauded the moves, highlighting synergies the deals offer, the heft to take on global competitors in pork and poultry businesses and the financial solidity that the merger with Bertin will bring.

 

"JBS acted smartly. Bertin will increase its presence in the Brazilian market, while the acquisition of Pilgrim's will allow it to diversify in the US," said Bruno Lima, an equity manager at local investment fund Mercatto.

 

JBS shares soared 8.2 percent to 8.59 Brazilian reals (US$4.77) in early afternoon trading on the Sao Paulo Stock Exchange.

 

Speaking on a conference call, JBS Investor Relations Officer Jeremiah O' Callaghan said the merger will not only bolster beef operations, it will allow the company to diversify into dairy and leather industries as well as improving distribution.

 

The Bertin deal is still dependent on the conclusion of the US$2.5 billion private share offering that JBS is preparing in the US. The offer may be delayed until January as changes have to be made to the documentation following the deals announced Wednesday, said the CEO.

 

He added that the company does not anticipate antitrust issues with either deal as it was not previously a player in the US poultry market and JBS and Bertin mainly compete in export markets, meaning that concentration will not be a major issue for the local beef industry.

 

"There are clear synergies with this deal," said Januario Hostin, an equity analyst at local investment fund Leme Investimentos. "The question is how they manage the different markets."