JBS Announces Acquisition of National, Smithfield,Tasman Beef

[farmers_son]

GREELEY, Colo., March 5 /PRNewswire-FirstCall/ -- JBS announces the acquisition of National Beef Packing Company, LLC ("National Beef"), Smithfield Beef Group, Inc. ("Smithfield Beef") and Tasman Group Ltd. ("Tasman"), as part of its strategy to increase its global presence in the beef industry.

Upon the closing of these acquisitions, JBS, which has over 55 years of tradition in the food sector, will have 63,000 employees worldwide, a cattle slaughter capacity of 79,200 head per day, 48,000 head of hogs per day and annual sales of approximately US$ 21.5 billion

On February 29, 2008, JBS signed an agreement to purchase National Beef. Also, on March 4, 2008, an agreement was signed to acquire Smithfield Beef, as well as Tasman, the first two companies are located in the United States and the third is located in Australia.

"As part of JBS' globalization strategy, the acquisitions of National Beef, Smithfield and Tasman represent the conclusion of an investment plan to build a sustainable platform for the slaughter, production and commercialization of red meat in the United States and Australia. This process began in July 2007 with the purchase of Swift & Company and culminates with these acquisitions," said Joesley M. Batista, president and CEO of JBS S.A.

National Beef will be acquired for a total enterprise value of approximately US$ 970 million. The value of the Smithfield Beef acquisition is US$ 565 million, which includes 100 percent of the shares of its subsidiary Five Rivers, which has 10 cattle feedlots with one time capacity of 811,000 head. The feedlots are located across the United States in Colorado, Idaho, Kansas, Texas and Oklahoma. Upon closing of the transactions, JBS plans to increase the working capital in Five Rivers by approximately US$ 200 million. Tasman will be acquired for approximately US$ 150 million. The transactions are expected to close as soon as possible, subject to the customary regulatory review and closing conditions


The financial advisor for JBS for the acquisition of National Beef and Smithfield Beef was JP Morgan and Rothschild assisted with the Tasman transaction.

"In order to finalize the acquisitions, JBS will do a private placement of new shares for the approximate value of R$ 2.6 billion (equivalent to US$ 1.55 billion) at the price per share of R$ 7,07 (US$ 4.20)," said Batista.

JBS initiated its international presence in September of 2005 with the acquisition of Swift Armour S.A. Argentina. Last year JBS bought Swift & Company, expanding its presence into the United States beef and pork industries and the Australian beef business. Also, at the end of 2007,
JBS finalized the agreement to buy 50 percent of Inalca/Montana, headquartered in Italy, which holds production and distribution units in Europe, Russia and four African countries.

"These acquisitions reinforce JBS' strategy to strategically diversify its production and distribution units, reaffirming its global presence in the main meat producing countries. It also allows us to reach customers across the world," according to Wesley M. Batista, president & CEO of JBS USA.
He also noted that "National Beef's reputation for efficiently producing high quality beef and for serving its customers is recognized worldwide. We are looking forward to working with its management and employees to expand our business in the United States and internationally," he said. "National Beef is an industry leader in value added fresh beef in the United States and is also a leading United States exporter of fresh chilled and frozen beef to Japan -- both of which are strengths that will complement our business plan for growth in beef processing in the United States and especially the Pacific Rim."
In respect to Smithfield Beef, Wesley Batista said, "We see this acquisition as an opportunity to participate in a segment of the business and a region where we are not present today. The synergy created will help us cut costs and reduce overheads in a highly competitive industry."

"In short, these acquisitions will increase the ability of JBS to meet the specific demands of its clients as well as generate economies of scale and other operational efficiencies that will create value for its shareholders," Wesley Batista added. "For the next several years, JBS will be focused on the improvement of its operational efficiency, maximizing synergies and organic growth with the objective of creating value to its shareholders, customers, suppliers and employees."

http://www.jbs.com.br/ir


About National Beef
National Beef holds three beef processing plants, one located in Dodge City, Kansas, one in Liberal, Kansas and the other in Brawley, California; two case-ready beef processing plants, specializing in products for sale to retailers destined to the end consumer, located in Hummels Wharf, Pennsylvania, and Moultrie, Georgia; one plant located in Kansas City, Kansas specializing in portioned products for commercial establishments and end consumers; and one refrigerated transportation company, with approximately 1,200 vehicles including refrigerated transportation and transportation of livestock, headquartered in Liberal, Kansas. For the fiscal year of 2007, National Beef had gross revenue of US$ 5.6 billion and processed 3.9 million cattle units.

About Smithfield Beef
Smithfield Beef holds four beef processing plants, located in Green Bay, Wisconsin, Plainwell, Michigan, Souderton, Pennsylvania and Tolleson, Arizona; one grease producing plant located in Elroy, Pennsylvania; one cattle feedlot unit in South Charleston, Ohio; and one transportation division, with approximately 120 refrigerated transportation vehicles. Five Rivers owns ten cattle feedlot units with a one time feeding capacity of 811,000 cattle units, located in the States of Colorado, Idaho, Kansas, Oklahoma and Texas. Smithfield Beef Processing processes approximately 680 thousand tons of fresh beef annually and, in the fiscal year of 2007, had an earned gross revenue of approximately US$ 2.7 billion and processed approximately 1.9 million head.

About Tasman Group
Tasman owns six processing plants, located in Brooklyn, Victoria (cattle and smalls), Cobram, Victoria (smalls), Devonport, Tasmania (cattle and smalls), Longford, Tasmania (cattle and smalls), Yarrawonga, Victoria (cattle) and King Island, Tasmania (cattle); and one cattle feedlot unit with a one time feeding capacity of 25,000 head of cattle and 45,000 head of sheep, located in Yambinya, New South Wales. In the fiscal year of 2007, Tasman earned gross revenue of AUS$ 443 million (approximately US$ 420 million), and processed 2.7 million cattle and smalls.

About JBS S.A.
JBS S.A. is a public company with its shares listed on BOVESPA's Novo Mercado under the symbol JBSS3. JBS operates 23 plants in Brazil and 6 in Argentina in addition to its operations in Australia and the United States resulting from the purchase of Swift and Company last year. In the year ending September 2007, JBS generated pro forma net revenue of US$11.9 billion and processed 9.0 million head of cattle. More information about JBS S.A. is available at http://www.jbs.com.br/ir/.

[per]

Second in size only to Tyson. Both are around 30% of the North American Market.

[smcgrath76]

JBS S.A. pulls a hat trick
Giant beef processor JBS S.A. will soon control 10 percent of the global beef market. In a stunning announcement this week, JBS said it has acquired two U.S. packing companies, an Australian packer and the world's largest cattle-feeding company. Joesley Mendonca Batista, president of the São Paulo, Brazil-based JBS, said company sales will rise to $22 billion a year once the transactions are complete, compared with $12 billion now. JBS says it will pay $1.27 billion in cash and stock for Smithfield Foods Inc.'s beef unit, Tasman Group in Australia and control of closely held National Beef Packing Co. in the United States. The deal also includes the purchase of Five Rivers Ranch, the world's largest cattle-feeding operation, which Smithfield jointly owns with ContiGroup Companies.
Following the announcement on Tuesday, shares of JBS stock fell 3.6 percent in São Paulo trading, but rebounded more than 7 percent on Wednesday. Tuesday's decline was the stock’s first since Feb. 14. To fund the purchases, JBS said it would issue shares to raise money in a private subscription. When finalized, the deal will give JBS control of 33 percent of U.S. beef slaughter. JBS spokesmen said Wednesday they expect antitrust regulators to approve the acquisitions. — Greg Henderson, editor
The world's largest beef processor
By acquiring Smithfield Beef and National Beef, JBS would become the largest U.S. beef processor. The acquisitions would allow JBS to slaughter more than 42,000 head per day in 12 U.S. plants. America's second- and third-largest beef packers are Cargill Meat Solutions, 29,000 head per day, and Tyson Foods at 28,000 head per day. Last year JBS bought Swift and Company for $225 million, with a slaughter capacity of about 18,000 head per day. JBS's Australian acquisition, Tasman Group, is Australia's largest multi-species meat processor. Additionally, Tasman operates a feedlot for 25,000 cattle and 45,000 lambs. JBS's acquisition of Five Rivers Ranch includes the company's 10 feedyards with a capacity of more than 800,000 head.
Industry observers believe this huge deal will be subject to review by the U.S. Department of Justice which may have antitrust concerns. When completed, the acquisitions would make JBS the world's largest beef processor, with the capacity to slaughter 80,000 head per day in plants in Brazil, Argentina, United States, Australia and Italy. Analysts believe JBS wants to expand in the United States, Australia and Europe to boost sales in markets that restrict imports of beef from Brazil. Smithfield spokesmen indicated now is a good time for them to exit the beef business amid rising corn costs and excess U.S. beef slaughter capacity. — G.H.


From Drover's Journal today.

[gcreekrch]

I wonder if owning shares in a kill plant would pay better than owning the cows?

[farmers_son]

I think agriculture needs to give some thought to how come an agribusiness headquartered in Brazil can raise over 1.5 billion. I seriously doubt if you raise 1.5 billion in North America for an agribusiness venture. High tech venture, maybe. Agribusiness, no. I suspect there would be many reasons for this but those reasons need to be understood and addressed or increasingly agribusiness will be owned and the decisions made somewhere else in the world. One example, although I did not take the time to go through everything, it seems like the GAAP rules are not exactly the same in Brazil as they are in North American. JBS showed a remarkable increase in net worth from 2004-2006 but that profit did not come from operations.

One outcome of this really massive purchase is it should help to illustrate to the Americans that the beef industry is not owned and operated by Americans any more. The packing industry is global and not necessarily run by American based interests. The old solutions that worked in the 1960s will not work today. Globalization changes the rules and primary producers need to learn to play a new game. I have pointed this out in other threads but my view is today the packing plant industry is made up of global players who view countries as profit centers or put another way branch plants that can be all to easily manipulated to be rivals, thereby providing the global purchaser with more quality for less and less money. The old view of domestic industries influenced by political lobbying for trade sanctions and government support really seems to be ineffectual and missing the mark today. U.S. producers seeking to protect their interests by lobbying for policies that lower the price of live cattle in other countries, especially live cattle in countries that can export to the U.S., only serves to create pools of cheaper live cattle that the packers can access.

I note all the interest in the U.S. re packer owned cattle. What U.S. producers need to understand is the packers do not have to own cattle in the U.S., all they have to do is to be able to buy cheap live cattle in Canada and Mexico. The packers do not have political boundaries. If producers in any country seek ways to increase the price of live cattle they need to start thinking beyond their borders too.

At one point there seemed to be a move to use phytosanitary rules as a non tariff trade barrier thinking South American could not meet those requirements for decades. It seems to me that JBS will easily be able to transition any technologies they acquire in North America and Australia to benefit any of their packing plants wherever they are located in the world.

I could not help but notice the picture of the Nelore cattle on the JBS website. Not quite what we are used to. The days of American or Canadian or Australian producers thinking they have the best beef in the world are coming to an end and actually ended quite a while ago. It has nothing to do with country any more.

[rkaiser]

Hate to leave this thread without a comment or two. Wonder where you are getting the idea that JBS is all South American money farmers_son? Even their acquisition of USPB involves shares in the company. For all we know Johny Tyson may have shares in JBS.

A bit scary to think that National (USPB) is selling out until you look at the big picture. The new farm bill in the US could affect business with USPB as it is today and if they are going to continue as shareholders and I feel contractors to the JBS plants, it may not be all bad. Sounds like a increase of over 500% in share values since shares were issued for USPB in 1997. Might entice a few more buy ins to Canada Gold.

You idea that country of origin has nothing to do with beef anymore has some flaws farmers_son. For one thing -- I feel that a branded "Canada Gold family of products will sell well domestically as well as the rest of the world. Using our high standards for health and traceability will allow Canada to brand and define her products whether they be Canadian back bacon, Sunterra's Canadian Pork products in Japan, or the new Canada Gold family of Beef Products.

[rkaiser]

Living the Beef Production Chain
Changing and Adapting ... Instead of Fighting Change
A few years ago, a dairy producer's association official told a convention of mostly Colorado cattle feeders that his dairymen had gotten tired of tight margins and small returns from milking. They had invested some check off money farther up the production chain. Reasoning that margins were larger and the profit potential bigger closer to the consumer, they bought interests in cheese factories and ice cream manufacturers. They also learned about the dairy business beyond the milking parlor.
When cattlemen signed up -- with their own money -- for U.S. Premium Beef (USPB), they were looking to capitalize on producing high quality beef for premiums.
Then someone else's misfortune - Farmland's collapse -- gave them the opportunity to do something similar to those dairymen -- get in the packing business. They recognized it as a unique opportunity. Their confidence in their product and National Beef's ability to profitably market high quality, branded products not only paid off short term in significant premiums for cattle ($28/hd. recently). It will soon pay off long-term.
According to reports*, USPB members will receive $261 million in cash for their shares and $65 million in JBS stock. The 450 unit-holders will get $286 per share, for shares that cost $55 in 1997 - a 520 percent return.
USPB said 2,100 producers from 36 states have marketed cattle on USPB's grids. While radical activists like R-CALF and NFU just made noise, thousands of cattlemen marketed millions of cattle through USPB, collecting a total $120 million in cash grid premiums. How many R-CALF "reformers" do you suppose collected any of those premiums, since they oppose marketing agreements and branded or "natural" beef programs?
Some thoughts... It requires a substantial-sized plant for long-term financial stability, in a narrow margin business. National bought Brawley (cattlemen-owned) and built additional distribution centers in order to compete. Smithfield's CEO indicated their continued involvement in the beef packing business flatly hinged on buying Swift. When they couldn't -- and achieve economies of scale -- being in the beef slaughter business didn't make sense any more.
Contrary to what R-CALF, NFU and Congressional crusaders think, we're long past a mom & pop packing plant being a realistic preferred national model. Steve Koontz, a Colorado State ag economist who has extensively researched packing economics, charted the total slaughter and processing cost difference between the big plants and smaller plants at 15 percent. That's $20/head, which he notes, is one thing when it's $20 less profit but another when it's $20 all loss. Average cost is $140/hd. for the chart's small plants (3,000 hd./day) and $120/hd. for the large (6,000 hd/day) but he's seen smaller plants whose costs at times hit $250. That contributes to study** findings that larger plants tend to pay more for cattle.
Another thought. Everyone's feverishly calculating capacity. However, many plants are not running near capacity. Cattle supplies are lower than national packing capacity. Part of that is drought, part is the increasing productivity of the U.S. cowherd, producing record beef supplies from many fewer cows and fed carcasses. Packers, whose whole business model is on a per head basis, are nowhere near their best efficiency at today's levels.
As one cattle industry leader commented, while cattlemen are not jubilant at more packer concentration, they have to count it a plus that instead of losing another plant or packer, JBS has pumped capital into the industry and strengthened three important players. If National and Smithfield - which had worked hard at carving out niches, running efficiently and were still in business - had been making great profits and saw a really bright future for smaller big packers, they wouldn't have sold.
The irony is, in the face of National's successful value-based story, Congress is about to snuff it out. USPB's cattlemen, majority owners in National Beef, would be outlawed in the proposed Farm Bill. That had to be a consideration for USPB's cattlemen while weighing JBS Swift's offer. And anyone wishing to follow in their footsteps would be prohibited. JBS Swift has said National's branded products have a reputation, worldwide, founded in USPB's quality cattle. This is the success Congress wants to make sure is never repeated?
The legislation would forbid someone from owning both cattle and a packer with two plants. It is not clear how many shares of stock in a packer a cattleman can own before he becomes a packer and can no longer legally own cattle. When government begins to micromanage business, it gets ridiculous very quickly.