Swift's deal puts new player in U.S. meat market
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By Bob BurgdorferCHICAGO (Reuters) - The sale of U.S. beef and pork company Swift & Co. to Brazil's JBS-Friboi gives the Brazilian company access to the tightly controlled U.S. meat market, where uncooked Brazilian beef is banned, U.S. industry sources said.The deal surprised many in the United States, who had expected Colorado-based Swift to be sold all or in part to U.S. meat companies."Based on recent conversations we have had with Smithfield , Tyson and others in the meat industry, the hope was for consolidation and not a new player," John McMillin, Prudential Securities analyst, said in a research report. "Exactly how competitive Friboi will be remains to be seen."Uncooked Brazilian beef has been banned on U.S. beef markets, because of foot-and-mouth disease in Brazil, said Jim Robb, an economist with the Colorado-based Livestock Marketing Information Center.While the deal as announced creates the world's largest beef company, according to JBS-Friboi, it would not affect market share of the major U.S. meat companies.But market shares could change later if JBS-Friboi sells some Swift units, as some U.S. analysts expect. JBS-Friboi said the pork unit could be sold, but U.S. analysts still believe some beef units could go."They have a lot of debt. They are going to make some changes. I don't know how they can not come around with another sale in two or three years," said Rich Nelson, livestock analyst with Allendale Inc., a Chicago-area brokerage firm. "The pork is the jewel of the company. The beef end is operating at so much undercapacity."JBS-Friboi bought Swift for $225 million in cash and the assumption of about $1.2 billion in debt.Swift has been struggling for some time, hurt by a loss of beef export markets beginning in late 2003 when the United States reported its first case of mad cow disease, and by losses in 2006 when U.S. immigration agents raided the company's plants as part of an identity-theft investigation involving immigrants.The raids cost the company from $45 million to $50 million in lost earnings and in expenses to recruit and train new workers.Swift's pork unit, which includes three U.S. plants, is considered the most profitable of the company's three units, but JBS-Friboi said that unit may be sold."We don't work with pork and our business isn't pork" said Joesley Mendonca Batista, JBS-Friboi chief executive.The company may decide within a year to sell that pork unit, even though Batista acknowledged it is the "best run in the company."But U.S. analysts and economists said parts of Swift's beef unit, could still be sold or will require significant investment."I think for pragmatic issues I would not be surprised if we see some spinning off of some of their assets," Robb said regarding whether the beef or the pork unit would be sold."I think it is still up in the air. The beef (unit) is struggling."
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