Marfrig to buy control of U.S.-based National Beef

Sao Paulo | Reuters –– Brazil’s Marfrig Global Foods said Monday it would buy control of Kansas City-based National Beef Packing for US$969 million, in a deal that would make it the world’s No. 2 beef processor.

Marfrig also said it was seeking to sell an existing U.S. unit, Keystone Food. The proceeds will be used to repay US$1 billion in loans it is taking out to finance the acquisition, which involves Marfrig obtaining 51 per cent of National Beef, the United States’ fourth-largest beef processor.

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National Beef’s cattle slaughter and primary beef processing operations are at Dodge City and Liberal in southwestern Kansas, about 130 km apart and billed as two of the “highest volume and most efficient” packing plants in the country.

According to Marfrig, National Beef’s two slaughter plants together are able to process up to about 12,000 head of cattle per day, accounting for about 13 per cent of U.S. slaughter capacity.

The deal helped propel Marfrig shares as much as 19 per cent higher on Monday. Analysts said the resulting company would be less indebted and better positioned to profit in the global market for beef products.

However, U.S. agriculture antitrust group the Organization for Competitive Markets lamented the increasing involvement of non-U.S. companies in the country’s beef trade.

“These foreign corporate giants will dominate the U.S. beef market, putting U.S. farmers and ranchers at their mercy,” it said in a statement.

The transaction will also give Marfrig broader access to the U.S. market almost a year after the U.S. banned imports of fresh Brazilian beef over safety concerns.

“It’s more of the same trend of these companies consolidating and the appetite for Brazil to diversify into the United States,” said Altin Kalo, a livestock analyst at Steiner Consulting Group.

“Brazil has faced barriers to sell beef into the U.S. and this is just one way to get exports to the U.S. If you can’t sell beef here, come in and buy a U.S. company.”

Marfrig CEO Martin Secco told a news conference in Sao Paulo that he hopes the U.S. will lift the ban by the middle of this year. Currently Marfrig supplies the U.S. market with fresh beef it produces in Uruguay, he said.

Uruguay has a quota to export 20,000 tonnes of fresh beef to the U.S. without any tariffs, and Marfrig accounts for 25 per cent of that, Secco said.

Brazilian investment bank BTG Pactual said in a research note that the deal would make Marfrig “a more focused and less leveraged protein operator, with a highly diversified beef footprint in South America and the United States.”

Chief financial officer Eduardo Miron said Marfrig doesn’t see antitrust concerns arising from its proposed acquisition of National Beef due to Marfrig’s small presence in the U.S. market.

The company said it expects to complete the sale of Pennsylvania-based Keystone, a processor of poultry and fish as well as beef, in the second quarter.

National Beef’s current majority shareholder, New York holding company Leucadia National Corp., today holds 79 per cent interest.

The deal with Marfrig would cut Leucadia’s stake to 31 per cent, with cattle producer association U.S. Premium Beef holding 15 per cent. The deal also calls for Leucadia and other shareholders to hang onto their stakes for at least five years.

Reporting for Reuters by Ana Mano; additional reporting by Gram Slattery and Marcelo Teixeira in Sao Paulo and Tom Polansek and Michael Hirtzer in Chicago. Includes files from AGCanada.com Network staff.

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