JBS buys Cargill pork unit for $1.45 billion | TheFencePost.com

JBS buys Cargill pork unit for $1.45 billion

Bridgett Weaver

After years of dominating much of the U.S. beef and chicken industries, JBS USA has planned to add to its protein ranks with a $1.45 billion acquisition of Cargill's U.S. pork division.

The Brazilian-based parent company, JBS S.A., announced on Wednesday it had entered into an asset purchase agreement with Cargill Meat Solutions Corp., based in Wichita, Kan.

The acquisition will include two meat processing plants, one in Ottumwa, Iowa, and one in Beardstown, Ill. It also will include five feed mills, with two in Missouri and one each in Arkansas, Iowa and Texas. Four hog farms also will be included in the deal, with two in Arkansas and one each in Oklahoma and Texas.

"We were not looking to sell our pork business but recently JBS approached us with an offer that we were compelled to consider. And we did," said Mike Martin of Cargill in Wichita. "Obviously, this announcement today is a result of that exchange of discussion."

Greeley-based JBS USA processes beef, chicken and pork throughout the United States and the world. Its U.S. pork business has been its smallest segment. In its first quarter earnings reports for 2015, JBS USA's pork unit earned $93 million, a 12.4 percent growth from the same time in 2014.

"Today's announcement of our agreement to purchase the Cargill pork operations is a strategic investment in the long-term growth of our domestic and global pork business and demonstrates our continued commitment to the U.S. livestock sector," said Martin Dooley, president and COO of JBS USA Pork, in a news release. "This transaction will strengthen our position as a producer and supplier of all major animal proteins around the world, and provide increased opportunities for our producer partners and key customers."

Recommended Stories For You

Company officials would not discuss the proposed deal further.

Cargill may not have been looking for the deal, but the company is happy with the pending contract.

"The strengths of the JBS and Cargill pork businesses are complementary. Together, they promise to offer enhanced service to customers and more opportunities for employees and hog producers while providing an important source of protein to consumers around the world," Todd Hall, Cargill senior vice president, said in the release. "The professional and focused manner in which JBS approached Cargill demonstrated to us that they place a great deal of value on growing this part of their company to better compete in the marketplace and are willing to invest in its future. JBS is acquiring a business with excellent people and fixed assets, and an established track record of success."

JBS already had a daily hog processing capacity of more than 50,000 hogs, with facilities in Worthington, Minn., Marshalltown, Iowa and Louisville, Ky.

It is uncertain how many hogs will be processed with the additional facilities, but the two Cargill facilities processed 9.3 million hogs in 2014 and employed 5,100 people.

Cargill is the fourth largest pork producer in the U.S. JBS is third, with a 12 percent market share of the pork industry.

The Federal Trade Commission hasn't yet approved the purchase of Cargill by the second largest food company in the world, but Brett Kaysen, board member and treasurer of Colorado Pork Producers Council, said he doesn't anticipate a problem. Kaysen said this purchase won't bump JBS into the lead in pork production in the U.S. Smithfield Foods will retain that title, he said.

"We've got several new pork processing plants coming online in the U.S. currently," Kaysen said. "The first thing people want to do when they see this JBS (acquisition) is — because JBS is the No. 1 red meat producer in the world — they want to say prices will shoot up. But we still have a great deal of diversity in the pork industry."

Kaysen explained that the pork industry had record profits in 2014 due to a virus that wiped out 8 million hogs. The virus drove the available supply down, which caused an imbalance in the supply and demand in the market.

Prices are down so far in 2015 and are expected to continue dropping in 2016 as more hogs flood the market, Kaysen said.

The Cargill announcement comes a week after JBS in Greeley opened its doors to local journalists for a tour of the USA headquarters based in Greeley. The tour covered the Greeley beef meatpacking plant, a Kersey feedlot and a Johnstown cattle farm contracted with JBS.

During the tour, company officials said the company would not be satiated with the status quo. JBS has a reputation for acquiring businesses and making them extremely profitable. If approved by federal regulators, the Cargill purchase announcement would make the 14th global acquisition by JBS SA since 2007, when it came to Greeley.

"We have a clear drive to be the best. That's the drive every day," JBS USA CEO Andre Nogueira said during the tour. "We love to buy business and improve the business. When we bought this office here (in 2007 in Greeley), it was a terrible company — it was losing year after year. Today, this office (Greeley headquarters) employs 1,000 people, almost three times more than it used to employ, but the company is five times larger than it was before we bought it."

A little more than a week ago, JBS spent $1.5 billion to buy Moy Park, the UK branch of Marfrig Global Foods. Moy Park produces poultry in Britain, Ireland, the Netherlands and France.

The acquisitions are unlikely to stop anytime soon.

"When are we going to stop? I'm not sure if we're going to stop," Nogueira said. ❖

Get the facts

» JBS is the second largest food company in the world.

» The food giant is first in the world in beef and lamb production.

» JBS is the largest global cattle feeder, the largest global leather processor and the largest global chicken producer.

» JBS USA Pork has a 12 percent market share and processes 50,000 hogs daily.

» Cargill processed 9.3 million hogs in 2014.

» Cargill is also a global food producer, but their pork division was only in the U.S.

» Annually, Cargill generates more than 2.3 billion pounds of retail, food service, commercial, variety and rendered pork products.

Source: JBS USA, Cargill Meat Solutions Corp.