JBS-Swift preps to buy Nos. 4 and 5 in beef packing industry

Bill Jackson, (Bio) bjackson@greeleytribune.com
March 5, 2008

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JBS-S.A., the parent company of JBS-Swift of Greeley, has shocked the beef industry not only in the United States but worldwide with a purchase that will be officially announced today.

"Wow," was the reaction of Dick Monfort when told of the deal which involves three U.S. companies and one in Australia that JBS is buying for $1.7 billion. In July of last year, JBS bought the former Swift & Co. for almost $1.5 billion.

JBS-S.A. of San Paulo, Brazil, will announce its intentions to buy National Beef Co. of Kansas City, the Smithfield Beef Group and Five Rivers Ranch Cattle Feeding, which is a joint venture of Smithfield Foods and ContiGroup and headquartered at Centerra in Loveland. In addition, JBS is buying the Tasman Group, the largest multi-species meat processor in Australia.

The National Beef purchase was announced by that company late Tuesday; Steve Kay, publisher of Cattle Buyers Weekly in California, confirmed the other purchases with several of his sources.

Monfort, whose family once owned the company that was sold first to ConAgra Foods, then to Swift & Co., said he began hearing rumors about some kind of pending sale earlier this week, but he said Tuesday evening he had no idea it would be this large.

"It's unbelievable. How did they bundle all that together?" Monfort said. And he, like Kay, wondered what the reaction of the U.S. Justice Department would have to the announcement, which means JBS will have the capacity to slaughter 42,500 head of cattle per day in the U.S. That's far ahead of the next two largest, Cargill Meat Solutions at 29,000 head per day and Tyson Foods at 28,300 per day.

In addition, with the purchase of Five Rivers, JBS will become the largest cattle feeder in the world. That company has 10 feedlots in Idaho, Colorado, Kansas, Oklahoma and Texas with a one-time capacity of 811,000 head of cattle.

"That's $1 billion right there," Monfort pointed out. Asked how his late father, Kenny Monfort, might view the announcement, he said, "I'm sure he'd rather be the seller than the buyer."

Kay said he has never seen anything that even comes close to approaching this in his 21 years of watching the industry. National and Smithfield Beef Group are the fourth and fifth largest U.S. beef processors; JBS-Swift is No. 3.

"This is breath-taking," Kay said Tuesday evening. He said that people remained skeptical of JBS has it set out to rejuvenate Swift's beef business, in part by attempting to maximize plant capacity.

"Now it is acquiring the two beef companies below it that have both been successful in recent years in different ways. It's timing could not be better," he said. The weak U.S. dollar versus the strong Brazilian real makes the acquisitions more financially attractive, Kay added.

"U.S. beef processors have struggled to make money since 2004, so they are not worth as much as they were before that year," Kay said.

Wesley Batista, CEO of JBS USA Inc., in the press release from National Beef, said "we are thrilled to be able to have National Beef become part of our North American beef processing operations," noting that company reputation for efficiency is recognized worldwide.

Steven Koontz is an agricultural economist at Colorado State University who closely follows the industry.

"If you gave me a chunk of National or Tyson, I'd sure rather have National," Koontz said. He said the National facilities are "exactly in the right place as compared to Swift," and "if you had to pick two plants in one company, National has cattle plants in exactly the right place."

He said Five Rivers also is a wise purchase, as it has top management running that operation. Five Rivers feedlots ranges in size from a capacity of 52,000 to 125,000. Four of its lots are in Colorado, including Gilcrest, Kersey, Yuma and Lamar.

But Koontz said there are not enough cattle presently to supply all the packing plants, so JBS could close some plants.

"The thing Greeley has going for it is its size. It's a big plant," Koontz said. JBS announced a second shift to that plant soon after it bought the company last July and put that shift into operation before Christmas of last year.

Kay said the deal calls for JBS to buy all the outstanding membership interests in National Beef for about $985 million. The majority owner of National Beef is U.S. Premium Beef. Its members, Kay said, will receive $261 million in cash and $65 million in JBS stock. Its 450 unit-holders will get $286 per share, compared to the original share price of $55 in 1997.

JBS will pay $565 million to buy Smithfield Beef Group and Five Rivers, Kay said. He said it is his understanding that JBS valued Smithfield, owned by Smithfield Foods, at $465 million and Five Rivers at $100 million. It will pay about $148 million for the Australian operation.

-- Tribune reporter Sharon Dunn contributed to this story.