Brazil's JBS SA said on Wednesday that it would take over bankrupt U.S. chicken company Pilgrim's Pride Corp and Brazilian rival Bertin, in deals that will propel it to the top of the world meat industry with $30 billion in annual revenue.
JBS will buy a 64 percent stake in Pilgrim's Pride for $800 million in cash. Pilgrim's Pride has an estimated enterprise value of $2.8 billion, Pilgrim's official said.
JBS, which already is the world's largest beef processor, said it also reached a deal to take controlling stake of Brazil's second-largest beef producer Bertin in an all-stock transaction, but did not disclose a value.
Based on JBS's closing share price on Tuesday, and the structure of the deal Bertin's total market value would be worth roughly 5.2 billion reais ($2.9 billion).
Shares of JBS rose 10.1 percent in Brazil, while Pilgrim's Pride shares were up 9 percent on the pink sheets.
The deals, combined with JBS's current holdings in South America, Australia, and the United States, would make it the world's largest meat company, said Jim Robb, an economist at the Livestock Marketing Information Center.
The company said it expects U.S. and Brazilian regulators to approve the deals.
In Brazil, we don't see concentration existing since both companies export 50 percent of their own production and the local market is spread out, said Joesley Mendonca Batista, JBS chief executive.
Adding Pilgrim's Pride would make JBS, which already has beef and pork operations in the United States, the No. 2 U.S. chicken company behind Tyson Foods Inc.
Analysts expect the Obama administration to closely scrutinize the Pilgrim's Pride deal, but approve it since there would be no change in the number of U.S. chicken companies or their respective market shares.
It will be an interesting test of the administration's view on consolidation, said Michael Swanson, a Wells Fargo agricultural economist. I would not think it is going to be a slam dunk that it gets approved.
JBS expects the deal to close in December when Pilgrim's Pride would emerge from Chapter 11 protection.
A RESCUE FOR PILGRIM'S
In the United States, the Brazilian company is already the third-largest beef producer, after Tyson and Cargill CARG.UL, and the third-largest pork producer, after Smithfield Foods and Tyson.
I think it's a good deal for both parties, Morningstar analyst Ann Gilpin said. JBS is able to get a lot of scale in an industry where it doesn't have any presence for pennies on the dollar.
The purchase price should please bondholders, said Paul Aho, an economist at Poultry Perspective. I think there will be some money left over for the shareholders, he said.
Aho also expects JBS, which is primarily a beef company, to retain Pilgrim's current management.
Pilgrim's Pride filed for bankruptcy in late 2008, hurt by high feed and fuel prices as well as debt from its late 2006 purchase of Gold Kist Inc.
Under the plan, all creditors will be paid in full and existing stockholders will get the same number of new common shares representing 36 percent of the reorganized company. The plan also calls for $1.75 billion to cover senior secured financing.
Lazard acted as sole investment banker to Pilgrim's Pride in connection with its financial restructuring and deal with JBS.
(Additional reporting by Dhanya Skariachan in Bangalore, Guillermo Parra-Bernal and Elzio Barreto in Brazil; Editing by Lisa Von Ahn, Reese Ewing and Leslie Gevirtz)