Brazilian beef exporter JBS SA is reportedly in final stage talks to acquire bankrupt chicken producer Pilgrim's Pride Corp. (PGPDQ.PK) for about $2.5 billion, which would give JBS a strong foot-hold into the U.S. food production industry. The deal would also pull Pilgrim's Pride off the bankruptcy court, with the combined posing new challenges to the global meat business. The deal, which is reported to be in the final stages of completion, is expected to be announced as early as next week. Both the companies declined to comment on the deal.
Like most of its rivals in the poultry industry, Pilgrim's Pride has been struggling with high input costs, falling prices of chicken due to oversupply and weak demand from consumers amid the economic downturn. In addition, the company is overburdened with debt because of its $1.1 billion acquisition of smaller rival Gold Kist Inc. in January 2007, even though the buyout helped it edge out rival Tyson Foods, Inc. (TSN) as the world's top chicken producer. At that time, Pilgrim's Pride also assumed $144 million of Gold Kist debt.
Pittsburg, Texas-based Pilgrim's Pride, one of the largest chicken companies in the U.S. and Mexico, filed a voluntary petition to restructure under Chapter 11 bankruptcy protection law in December 2008, after recording a fiscal 2008 loss of almost $1 billion. Pilgrim's Pride was pushed into bankruptcy due to massive debts, slumping demand, weak market pricing, combined with high animal-feed prices. Pilgrim's Pride earlier said it intends to exit from bankruptcy by the end of this year. However, the company's operations in Mexico and certain operations in the U.S. were not included in the filing and continue to operate as usual outside of the Chapter 11 process.
Pilgrim's Pride, a Fortune 500 company, controlled about 24% of the U.S. market, and employed about 48,000 people and operated 35 chicken processing plants and 11 prepared-foods facilities. During the first nine months into bankruptcy, Pilgrim's Pride closed seven processing complexes and two distribution centers, according to a filing with the Securities and Exchange Commission. It also reduced or consolidated production at other U.S. facilities. The company expects to lose about 6,390 production positions and 440 non-production jobs.
The proposed JBS-Pilgrim's Pride deal would become a new competitor for Tyson Foods, which is currently the only meat company in the U.S. that produces beef, chicken and pork. The combined company, with the addition of Pilgrim's Pride's chicken production, would also produce beef, chicken and pork in the U.S., making it a direct rival to Tyson Foods.
Tyson Foods is the largest beef and second-largest pork processor in the U.S., while the JBS-Pilgrim's Pride combined company is seen to become the third-largest beef and third-largest pork processor in the U.S. Individually, JBS is currently the largest beef processor and exporter in the world.
The proposed deal could come as a boon for Pilgrim's Pride's bankers as well as bond holders, as they would likely be paid in full. Further, there would also be money for the company's shareholders. These two facts are a rarity for bankrupt companies. Pilgrim's Pride's current market value is about $360 million as the stock closed Wednesday at $5.15.
Last year, Sao Paulo-based, Brazil-based JBS acquired Smithfield Beef, a unit of Smithfield Foods, Inc (SFD), and then canceled its plans to acquire National Beef Packing Co. in February, after the deal was challenged on antitrust grounds by the Justice Department and 13 states. The proposed JBS-Pilgrim's Pride deal could also attract scrutiny from antitrust enforcers, who keep a keen eye on competition in the agriculture business.
JBS first established its presence in the U.S. when it acquired the heavily indebted meatpacker Swift & Co. in 2007, which made JBS the world's largest beef producer.J BS' North America unit in its U.S. operations, JBS USA Holdings, has also filed with U.S. market regulators in July to make a $2 billion initial public offering.
PGPDQ.PK closed Wednesday's regular trading session at $5.15, up $0.25 or 5.10% on a volume of 0.69 million shares, higher than the three-month average volume of 0.35 million shares. In the past 52-week period, the stock has been trading in a broad range of $0.14 to $14.36.
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