JBS buy Smithfield and Tasman Group

12 March 2008

JBS SA have signed definitive agreements to purchase America's Smithfield Beef Group Inc for $565 million in cash and Australia's Tasman Group for $150 million in cash. Tasman operate six plants, three in Victoria and three in Tasmania.
The purchases came less than 24 hours after JBS announced they had purchased National Beef Packing.
According to Meatingplace.com the total cash and stock portion of the three purchases amounts to around $1.3 billion.

Smithfield Foods said the Smithfield Beef sale to JBS will include 100% of Five Rivers Ranch Cattle Feeding, which is currently held by Smithfield Beef in a 50/50 joint venture with Continental Grain Company. Smithfield Foods and CGC have agreed that, immediately before closing of the JBS transaction, Smithfield Beef will acquire from CGC the 50% of Five Rivers that it does not presently own in return for 2.167 million shares of Smithfield common stock. The transaction excludes substantially all live cattle inventories held by Smithfield Beef and Five Rivers as of the closing date, together with associated debt. Live cattle currently owned by Five Rivers will be transferred to a new 50/50 joint venture between Smithfield Foods and CGC, while live cattle currently owned by Smithfield Beef will be transferred to another subsidiary of Smithfield Foods. Smithfield Foods expects that the net proceeds of the transaction plus the proceeds from the sale of the retained cattle inventory will be used primarily for debt reduction. Smithfield Beef have a processing capacity of 7,600 cattle per day. Five Rivers is the largest cattle feedlot operation in the US with a one-time feeding capacity of 811,000 head of cattle. The JBS acquisition of National Beef Packing Co and Smithfield Beef Group will allow their US holdings more plants from which to export beef to potentially lucrative Asian markets. The Sao Paulo beef company, whose Greeley, Colorado-based JBS-Swift & Co becomes the largest beef processor in the US, said the outlook for exporting beef to South Korea and Japan looks bright. ‘We think we'll have great opportunities there, JBS President and CEO Joesley Batista told reporters and investors. ‘As Australia is sending more beef to Europe because of European prices, we're confident Japan and South Korea will need to buy more beef from the United States.' Opinions vary about when exactly those markets will fully reopen, with some saying that South Korea will do so sometime in March. JBS said it's confident that whenever Seoul reopens to US beef, Japan will be inclined to follow in short order. At the same time, JBS's related acquisition of Australian beef processor Tasman Group bolsters the company's ability to gain access to Europe, which currently restricts imports of Brazilian beef. With Smithfield Beef Group and National Beef Packing Co,, JBS now account for around 30% of the US market's total beef processing capacity. However, although aware of the continuing excess of slaughter capacity, Batista said the company has no immediate plans to reduce capacity. ‘We do not have a specific idea about shutting down plants', Batista said. ‘What I can tell you is we are very confident that after these acquisitions, we will be able to become more efficient, more profitable, and we will do whatever necessary to produce good results.' Batista said that after buying Swift and Co in May last year, JBS executed a strategy to maximise capacity utilisation, increasing total daily slaughter from 14,000 head of cattle to 19,000 head of cattle. Stocks of meat processors rose after the news broke that JBS has agreed to purchase US beef packer rivals National Beef Packing Co and Smithfield Beef Group. Shares of Tyson Foods rose more than 6%. If the JBS acquisitions come through, it would leave Tyson and JBS each holding a roughly 30% share of US capacity. The other big beef player, Cargill Meat Solutions, is privately held. Smithfield Foods shares rose more than 5%.

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