Smithfield Foods Inc’s shares, the top U.S. pork producer, jumped as much as 8.3% Tuesday on speculation the company may be a takeover target for Brazil-based meat processor JBS S.A. A report in the Brazilian publication Valor Econômico, citing market sources said JBS may seek discussions over an acquisition with Smithfield.
US Smithfield is weakened by a deep slum in the pork industry because of soaring feed costs and the H1N1 (‘swine’) flu
Over the past three years, JBS spent more than US$ 2.7 billion on U.S. acquisitions in beef, pork and poultry. JBS paid US$ 1.4 billion for beef and pork processor Swift & Co. in 2007 and, in 2008, purchased Smithfield’s cattle feeding and beef operations for US$ 565 million USD.
Last year, JBS paid US$ 800 million for a majority stake in Texas-based chicken processor Pilgrim’s Pride Corp.
With Smithfield weakened from a deep pork industry slump in recent years, the company may be vulnerable to a takeover by a larger, stronger company, analysts said.
“JBS has a history of buying beat-up food companies and cutting costs and people to get them profitable,” said Steve Share, a managing director and analyst with Wisco Research LLC in Madison, Wisconsin. However, JBS “still has a lot on its plate” with Pilgrim’s Pride and other recent purchases, he said.
Hog producer losses ballooned since 2007 as feed costs soared and the recession and the H1N1 virus outbreak curbed pork demand. In the past two fiscal years, Smithfield posted a combined net loss of almost US$ 300 million.
An acquisition of Smithfield would give JBS a dominant share of U.S. pork processing – or about 36% of the US nationwide slaughtering capacity, according to industry data.
Currently, Smithfield operates eight U.S. hog slaughter plants with combined capacity to process 110,000 head a day, or about 26% of U.S. capacity. The Smithfield, Virginia-based company had revenue of US$ 11.2 billion last year.
Any JBS purchase would likely have to be cleared by U.S. antitrust regulators, analysts said. JBS is the world’s biggest beef processor, with capacity to slaughter about 51,000 head a day.
Keira Ullrich, a Smithfield spokeswoman, declined to comment, citing the company’s policy not to comment on marketplace rumors. JBS did not respond.