JBS and National Beef merger fails

23 February 2009

According to meatingplace.com, JBS-Swift & Co and National Beef have broken off talks with the US Justice Department over the merger of the two companies and will be moving forward as independent companies. The DOJ said it welcomed the decision: ‘Had the acquisition gone forward it would have combined two of the top four US beef packers resulting in lower prices paid to cattle suppliers and higher beef prices for consumers.

‘The decision to abandon the transaction will preserve competition in the purchase of cattle that has been critical to ensuring competitive prices to the nation's thousands of producers, ranchers and feedlots. It will also preserve competition in the sale of boxed beef to grocers, food service companies and ultimately American consumers. The Department remains vigilant in protecting competition in this industry with more than $50 billion in total commerce at stake.'

Conversely, Derrell Peel, an agriculture economist at Oklahoma State University, told Meatingplace the downside of the terminated merger is it will make a slower and more difficult process of shedding some of the excess capacity that has plagued the industry. Peel said given current economic conditions and the fact that the US cattle herd is at its smallest in 50-plus years, consolidation is inevitable; it's just a matter of how it is going to occur.

‘A merger like this certainly scares some folks in terms of concentration', he said, ‘but it also essentially permits the combination of the stronger elements and perhaps pares away the parts that are weak.'

Neither JBS spokesman Chandler Keys nor Steve Hunt, chief executive officer of US Premium Beef, would discuss in detail immediate strategic plans for their respective companies. Keys, however, disputed speculation that JBS would sell off Smithfield Beef Group assets if it could not land National Beef. ‘The Smithfield (JBS-Packerland) beef operations always make money. You don't get rid of a profit centre, particularly if you're liquid.'

JBS president Joesley Batista said the company was ready to ride out the global economic downturn, but would still keep an eye out for future investment opportunities. "We believe that 2009 is a year governed by caution," Batista said in a statement accompanying the company's fourth quarter financial results.

Batista said JBS will be ‘conservative on investments' and focus on integrating current acquisitions, increasing productivity and tightly managing working capital to decrease leverage. ‘Thus, we feel that we will be ready for market adjustments while being vigilant towards investment opportunities which could add value to our balance sheet', he said.

Batista's statements come on the same day that JBS. the world's largest beef company, announced they had given up their quest to buy National Beef Packing Co, the fourth largest US meat packer.

JBS became the No 3 US beef producer in October 2008 when the DOJ approved their purchase of the beef operations of Smithfield Foods, which included four beef plants and the Five Rivers Ranch cattle-feeding operation, but held back on approving the National Beef deal. The company had been negotiating with the agency to try to work out a compromise since.

JBS said they will continue to pursue further efficiencies at all their other units within the United States, which consist of eight cattle slaughter plants with a daily capacity of 28,100 head; three pork slaughter plants with a daily capacity of 47,900 head; 11 cattle feed yards in six states; a case-ready plant and a lamb slaughter plant as well as related operations in Australia, Italy, Argentina and Brazil, where their headquarters are located.

JBS SA are currently the world's largest beef producer and exporter with a daily slaughter capacity of 65,000 head of cattle per day and the largest global exporter of processed beef. The company's operations include 22 plants located in nine Brazilian states, six plants located in four Argentine provinces, 16 plants in the United States, nine in Australia and ten in Italy.

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