JBS owner J&F to buy Swift, create largest meat maker
J&F Participacoes SA, which controls JBS SA, Latin America's biggest meat producer, agreed to acquire Swift & Co. of the U.S. for $225 million in cash to create the world's largest beef and pork processor.
J&F will assume $1.2 billion in Swift debt plus all transaction-related expenses, the companies said today in a statement. J&F owns 77 percent of Sao Paulo-based JBS, which produces Brazil's Friboi meat brand. Swift is controlled by Dallas-based buyout firm HM Capital Partners LLC.
Swift has reported only one profitable quarter since November 2004 after cases of mad-cow disease led to a collapse in U.S. beef exports. The acquisition will give JBS access to the U.S, the world's top consumer of beef, and open Asian markets such as Japan, which ban imports from Brazil.
``North America and North Asia are the prized markets for the beef industry around the world,'' said Wendy Voss, a Sydney- based senior analyst at Rabobank Group. The deal gives JBS quick entry into premium markets ``through both the U.S. and Australia and broadens their supply base,'' she said.
Shares of JBS today were halted on today's announcement. Yesterday they rose 26 centavos, or 3.7 percent, to 7.31 reais in Sao Paulo. The stock has gained 4.4 percent since the company raised 1.6 billion reais ($820 million) in an initial public offering in March.
World's Largest
``Joining J&F to become the world's largest beef and pork processor, Swift should emerge even stronger, and that is good news for our partnership customers, our suppliers and our employees,'' Swift Chief Executive Officer Sam Rovit said in a statement.
JBS plans to cut costs at Swift without layoffs and will reduce its debt obligations, JBS Chief Executive Officer and J&F partner Joesley Mendonca Batista said today during a news conference in Sao Paulo.
``Reducing fixed costs will be a big obsession for us,'' Batista said.
Acquiring Swift ``is a major step for our group in establishing a global presence,'' Batista said in a statement. ``More importantly, Swift will provide us with access to the Pacific region.''
South American beef exporters are banned from Asian markets because of the presence of foot-and-mouth disease in their herds, said Rabobank's Voss. Brazil is the world's biggest exporter of beef.
Seeking Buyer
Greeley, Colorado-based Swift, which had a net loss of $48.6 million in the quarter ended Feb. 25, said on Jan. 22 that it was considering a sale after receiving unsolicited inquiries.
Swift has four U.S. beef plants and can slaughter 15,850 head of cattle a day. The company had sales of $9.35 billion in the year ended May 28, 2006. Beef sales were $5.58 billion.
``Clearly the Brazilians are willing to take a positive view around recovery in U.S. beef exports,'' said Wachovia Securities Inc. analyst Jonathan Feeney in a note to investors today.
Feeney, who covers Swift competitors Tyson Foods Inc. and Smithfield Foods Inc., said that JBS will benefit from Swift's Australia business, which sells to Asian countries including Japan and South Korea.
``Swift Australia clearly was too important for JBS to pass up, with a once-in-a-lifetime chance to access Pacific markets where most of the world's population growth is happening,'' he said.
Australia Shipments
Australia's beef shipments to Japan jumped 46 percent to 440,304 metric tons in 2005 from 2003, according to the U.S. Meat Export Federation. The U.S. in 2003 shipped 353,950 tons to Japan, before trade was halted because of mad-cow disease found in Washington state in December that year. The U.S. shipped 13,736 tons of beef to Japan in 2006 after trade was reopened.
South Korea also stepped up imports of beef from Australia after the U.S. meat was banned. South Korea bought 139,798 metric tons of beef in 2005, up 79 percent from 2003. The U.S. sent 248,645 tons of beef to South Korea in 2003, before the ban, the Denver-based trade group said.
Swift also runs four feedlots producing 198,000 cattle a year. The company has three pork plants and one lamb slaughter facility. The company can slaughter about 44,400 hogs daily. Swift Australia has four beef plants and can slaughter 5,800 animals a day.
`Impaired' Assets
Credit Suisse Group analyst Robert Moskow wrote on April 23 that Swift's assets are ``impaired'' and that the company may attract a sale price of less than $1.5 billion. Any buyer would face costs to shut Swift's offices in Greeley as well as redundant packing plants, Moskow said.
In December, the U.S. government raided six Swift plants and arrested 1,300 workers on immigration violations, costing the company $45 million to $50 million in lost production and other expenses. The company said on May 11 that its beef plants were fully staffed.
HM Capital and Booth Creek Management Corp. acquired Swift from ConAgra Foods Inc. in 2002 for $1.23 billion in cash and assumed debt.
Tyson Foods, based in Springdale, Arkansas, is the world's largest beef producer, followed by Wayzata, Minnesota-based Cargill Inc. Smithfield Foods, based in Springfield, Virginia, is the biggest pork producer, followed by Tyson.
HM Capital's financial adviser was JPMorgan Chase & Co., and its legal adviser was Vinson & Elkins LLP. Rothschild was J&F's financial adviser and Greenberg Traurig LLP and Velloza, Girotto & Lindenbojm were legal advisers.
(Published by Bloomberg, May 29, 2007)