Marfrig acquires 51% of National Beef for $969M
April 12, 2018
Brazil's Marfrig Global Foods has reached an agreement to acquire 51 percent of National Beef Packing Company for $969 million, becoming the world's second-largest beef processor, the company announced in a statement. JBS remains the largest.
In addition, Marfrig intends now to sell 100 percent of Keystone, a transaction which will further reduce its leverage to 2.5x by the end of 2018. Keystone is one of the world's largest burger manufacturing companies, supplying burgers to McDonalds and other food chains.
"The acquisition of National Beef is a unique opportunity," Marfrig CEO Martín Secco said. "With the transaction, we will have operations in the two largest beef markets in the world, we will reach extremely sophisticated consumer countries and we can grow by maintaining strict financial discipline."
Marfrig estimates its revenue will reach $13 billion and earnings before interest, taxes, depreciation and amortization will total $1 billion annually after the acquisition is completed.
“Because Marfrig’s purchase will not change the already excessive market concentration in the United States as it transfers American ownership for foreign ownership, it represents the selling off of American assets one piece at a time. So, this is more a trade and economic security problem than a market concentration problem and it raises the question of whether major food processing firms in the United States like National Beef rise to the level of a national security/critical infrastructure interest. We’re going to argue to this Administration that it does and we hope our argument will resonate better with the Trump Administration than it did with the past Obama Administration.”Bill Bullard, R-CALF CEO
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The company's slaughter capacity will total 8.3 million cattle per year with the combined operations. Marfrig will also have access to the Japanese and South Korean markets, which are currently closed to Brazilian beef.
Leucadia National Corporation will transfer National Beef's control to Marfrig but will remain as a minority shareholder of the company, with a 31 percent stake. US Premium Beef, comprised of a group of 2,100 US-based cattle producers, founded in 1996, will hold 15 percent and other shareholders will hold the remaining 3 percent. According to the agreement, Leucadia and other investors cannot sell their shares in National Beef for at least five years.
The acquisition of National Beef is 100 percent financed by Rabobank.
National Beef will remain under the management of current CEO and Chairman Tim Klein. Marfrig will nominate five members to the company's board, Leucadia will choose two and the other shareholders will define two more members.
National Beef, which was founded in 1992, operates two slaughtering facilities in Kansas and is responsible for handling about 13 percent of the cattle slaughtering capacity in the U.S. each year. It also operates three processing plants located in Hummels Wharf, Pennsylvania, Moultrie, Georgia, and St. Joseph, Missouri.
Secco said Marfrig plans to complete the acquisition of National Beef and the sale of Keystone in the first half of this year.
The news, following threats of trade officials proposing tariffs of up to 25 percent on beef and pork exports from the US, is somewhat concerning, according to some in the industry.
The US Cattlemen's Association is requesting that Congress weigh in on the topic, considering the complexity. According to Jess Peterson, Senior Policy Advisor, the group is requesting that the Committee on Foreign Investment in the United States conduct a full review of the purchase and ensure that there are no national security issues.
"Not only will this move increase consolidation of meat processors on a global level, but Brazil is simply a bad actor in the global marketplace. Our concerns lie with their intentions following the acquisition — is Marfrig trying to circumvent the current ban the U.S. has placed on Brazilian beef imports to take advantage of the U.S. cattle and consumer marketplace?" Peterson added.
R-CALF CEO Bill Bullard said, "Because Marfrig's purchase will not change the already excessive market concentration in the United States as it transfers American ownership for foreign ownership, it represents the selling off of American assets one piece at a time. So, this is more a trade and economic security problem than a market concentration problem and it raises the question of whether major food processing firms in the United States like National Beef rise to the level of a national security/critical infrastructure interest. We're going to argue to this Administration that it does and we hope our argument will resonate better with the Trump Administration than it did with the past Obama Administration.
"What is disconcerting here is that Brazil is to the American meat industry what China is to American manufacturing. We believe Brazil's meat industry is subsidized by the Brazilian government that wants Brazil to become the world's dominant meat producer/exporter. We believe it is subsidizing overproduction, cheating at trade, forcing competitors out of the market, and exploiting cattle producers. And, like China that is buying American manufacturing firms, Brazil is now buying American meat companies. The United States needs to block these aggressive, mercantilistic practices before we dismantle the competitive marketing channels that Rural America depends on for its economic survival."
Consolidation in the packing industry continues to be a topic of discussion and concern on the production end. According to the U.S. Department of Agriculture, the top four beef processors hold 85 percent of the market share, controlling the beef market to the point that some producers believe the companies have the ability to influence livestock prices.