JBS Acquisition of Pilgrim’s Pride Looks More Likely07 September 2009
US - JBS is close to buying Pilgrim's Pride, hint insiders.
Last week's surprise rumours that JBS SA, the world's largest beef producer, may buy bankrupt poultry company, Pilgrim's Pride Corporation are gaining credibility.
Bloomberg reports the comments of two people familiar with the talks.
JBS will tap about $1.2 billion of cash and $500 million of revolving credit lines to buy Pittsburg, Texas-based Pilgrim's Pride, said one of the people, declining to be identified because the information is not yet public. JBS is also considering acquisitions in Brazil, the person said.
Chief executive officer, Joesley Mendonca Batista, turned JBS into the top meatpacker, processing about 10 per cent of the world's red meat, after buying Swift & Co. in 2007 and two Smithfield Foods Inc. units last year. JBS has been raising funds for acquisitions after the economic contraction led rivals worldwide to post losses and struggle for cash.
"This could be another success story," Denise Messer, an analyst at Brascan Corretora in Rio de Janeiro, said in a telephone interview to Bloomberg.
She said: "JBS has a track record of buying companies in dire straits and turning them around." She raised JBS's rating to 'market perform' from 'underperform' on 13 August.
The purchase of Pilgrim's Pride may be valued at $2.5 billion, the Wall Street Journal reported on its web site on 2 September, citing people familiar with the matter whom it did not name.
"We are putting the crisis behind us and getting back on track," Batista said in Sao Paulo on 13 August. "This is a company that grows through acquisitions and organically."
Bloomberg reports that there is currently no firm agreement that justifies a formal announcement, JBS said in a regulatory filing on 2 September in response to news reports that it may buy Pilgrim’s Pride.
Vanessa Esteves, a spokeswoman for JBS in Sao Paulo, told Bloomberg that the company has nothing to add to the statement. Pilgrim's Pride spokesman, Ray Atkinson, declined to comment.
JBS rose 0.8 per cent to 7.93 reais (BRR), paring earlier gains of as much as 2.3 per cent, in Sao Paulo trading today. Pilgrim's Pride fell five per cent in New York, after plunging as much as 10 per cent.
JBS paid $225 million for Swift in 2007, assuming $1.2 billion of debt, and $580 million for the Smithfield beef-processing and cattle-feeding operations last year.
Pilgrim's Pride sought bankruptcy protection in December, citing rising grain costs and a poultry surplus that led to four consecutive quarterly losses. The supplier to Wal-Mart Stores Inc. and Yum! Brands Inc.'s KFC restaurants listed assets of $3.75 billion and debt of $2.72 billion in its bankruptcy filing.
JBS, which sold $700 million of five-year bonds in international markets in April, had BRR 2.3 billion ($1.2 billion) of cash at the end of the second quarter, according to its earnings report. Batista said JBS may draw from revolving credit facilities for $400 million in the US and A$200 million ($167 million) in Australia.
The company's US unit has filed to hold a $2 billion share offering, without giving a time frame.
JBS was cut to 'hold' from 'buy' at Banco Santander SA on 11 August, partly on concern that the planned share offering by its US unit would lead to more acquisitions.
The Bloomberg report concludes that Pilgrim's Pride was formed in 1946 when Aubrey Pilgrim and a partner, Pat Johns, bought a feed store for $3,500. The company took on debt and surpassed Tyson Foods Inc. in production in 2007 when it bought Atlanta-based Gold Kist Inc. for $1.1 billion.
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