JBS looks to move into poultry

Sep 4, 2009
by WLJ
JBS looks to move into poultry

JBS SA, the Brazilian firm which made a big move into the U.S. beef industry with its purchase of Greeley, CO-based Swift, along with the assets of Smithfield Beef and Five Rivers Cattle Feeding two years ago, has announced its intention to get into the U.S. poultry business. Last Wednesday, the Wall Street Journal reported the company is set to announce the purchase of Pilgrim’s Pride Corp., the troubled Texas chicken company. The deal, expected to be announced after Labor Day, will cost JBS a reported $2.5 billion for the company which is currently undergoing bankruptcy proceedings. The deal would move JBS into position to challenge Tyson

Foods as the largest meat producer in the U.S., with approximately $20 billion in annual revenue. According to industry statistics, Pilgrim’s Pride controls about 22 percent of the U.S. poultry market. Although the combined operations of JBS and Pilgrim’s Pride are sure to generate operating efficiencies, the deal is certain to draw scrutiny from the U.S. Justice Department (DOJ). Earlier this year, representatives from DOJ told agricultural group Organization for Competitive Markets that they would take a closer look at competition issues in the U.S. agriculture industry.

Already, DOJ has blocked JBS from expanding further in the beef business when it ruled last year that the company could not complete its transaction to acquire National Beef. According to the Wall Street Journal, the proposal under consideration would allow JBS to make a “stalking horse” bid in which it will be in the lead to acquire Pilgrim’s Pride, though other bidders could later make competing offers, said the people familiar with the matter. JBS would pay off $1.2 billion in secured debt, about $1 billion in unsecured debt, accrued interest for the debtholders, and leave a “couple hundred million” for shareholders.

Last week, Pilgrim’s Pride stock traded at $5.15, giving the company a market value of $360 million. — WLJ