JBS still committed to completing National Beef deal

Feb 6, 2009
JBS still committed to completing National Beef deal

JBS Swift is continuing talks with the U.S. Department of Justice (DOJ) on potentially divesting assets to complete its purchase of National Beef Co., and talks remain stuck on some of the major points laid out by DOJ in its anti-trust case, JBS executives said late last month.

JBS Swift executives talked with reporters at the Cattle Industry Convention in Phoenix, AZ, about the case and overall status of the industry. JBS and DOJ officials delayed a hearing, initially slated for Jan. 29, to continue talks in the case. The company is anxious to come to some terms, said JBS spokesman Chandler Keys. “We’re in negotiations with DOJ,” Keys said. “We just pushed out the first date we will talk to the judge to March 1, which gives us more time to continue our discussions with DOJ. Quite clearly, DOJ in their complaint on the acquisition of National clearly laid out what they wanted and what they were worried about. That’s where DOJ is, and we are working with them based on their complaint.”

DOJ sued in October to block the JBS purchase of National Beef after complaints from livestock producers and a hearing in Congress. It was the first anti-trust case filed by DOJ to stop a corporate merger in nearly four years. DOJ stated at the time that the proposed deal would result in “lower prices paid to cattle suppliers and higher beef prices for consumers.”

Wesley Batista, CEO of JBS Swift, said the case isn’t affecting daily operations for JBS Swift, which is now the largest beef packer in the U.S. “We are working very focused in our business that we have today,” Batista said. “There is some uncertainty, what’s happened if the acquisition doesn’t go through, but we are running our business. It has not created some problems for us. We are OK.” In announcing the purchase last March, the Brazilian-based JBS agreed to pay $465 million in cash and $95 million in stock for National Beef, as well as take over about $400 million in National Beef’s debt obligations, the companies stated when the sale was announced.

Combining JBS Swift, Smithfield plants that JBS also bought last year, and National Beef makes JBS the largest beef packer in the country, with daily kill capacity of nearly 43,000 head. Cattle producers from several organizations were concerned about JBS owning National Beef’s plant in Brawley, CA, as well as a former Smithfield plant in Tolleson, AZ. DOJ said in its lawsuit that if JBS owned the Brawley and the Tolleson plants, that would effectively mean only one major beef-packer buyer in Arizona and California.

DOJ also stated at the time the suit was filed that JBS’ purchase of National Beef “would substantially restructure the beef packing industry, eliminating a competitively significant packer and placing more than 80 percent of domestic fed cattle packing capacity in the hands of three firms: JBS, Tyson Foods Inc. and Cargill Inc. The department concluded that the acquisition would lessen competition among packers in the production and sale of US- DA-graded boxed beef nationwide.

It also concluded that JBS’ acquisition of National would lessen competition among packers for the purchase of fed cattle in the High Plains, centered in Colorado, western Iowa, Kansas, Nebraska, Oklahoma and Texas, and the Southwest.

As far as the overall state of the beef industry, Batista said there is some over-capacity right now in the U.S. meatpacking market, but it is not so significant that it is affecting the market tremendously.

Despite the economic downturn, packers are showing some reasonable margins, he said. Further, beef consumption should remain stable, he said. JBS also owns the nation’s largest cattle-feeding operation, Five-Rivers Feeding, which has capacity for up to 811,000 head of cattle. From that perspective, JBS also has an interest in the losses being sustained in the cattlefeeding business over the last six to eight months. Industry analysts project cattle feeders lost an average of $150 a head for 2008. “We definitely hope that this market will start to rebound and improve again,” Batista said. “The cattle market has dropped very hard in these past months, and we hope and work to help where we can help, to help the producer to restart to make money, because that is very important. If the producer does not make money, it will be tough for us as well.” JBS also is like every other major player in the livestock industry, watching to see what will happen with country-of-origin labeling (COOL). Keys said JBS will implement it as USDA requires, but the constant battles over COOL are getting tiring.

If the new administration looks at that rule and wants to change it, we will engage with the administration and talk with them and answer their questions and whatever they want to do, we will implement it,” Keys said. “I think the industry is ready to move on from this COOL debate. I hope we don’t go through this thing all over again. It’s like ‘Groundhog Day.’” — Chris Clayton, DTN