The largest South American meat packer just gobbled up another struggling competitor. J&F Participações S.A. of Sao Paulo, Brazil, parent company of JBS-Friboi, announced Tuesday the purchase of Greeley, CO-based Swift & Co. J&F will reportedly pay $225 million in cash and assume about $1.16 billion of Swift debt to the international rival currently owned by HM Capital Partners LLC, Dallas, TX.
The total value of the deal is about $1.4 billion and makes Friboi arguably the most powerful force in the global beef business.
There's been speculation for more than a year that Swift would be sold, either whole or in parts. In about March, not long after Friboi went public on the Sao Paulo Stock Exchange, word began circulating it might venture north.
Friboi slaughters about 22,600 head of cattle/day in 21 plants across Brazil. And through relatively recent acquisitions, it has five plants in Argentina. Friboi and Swift say they'll have a capacity to slaughter 47,100 cattle/day. That would top Tyson's 37,100 and Cargill's 36,000, according to industry sources.
The acquisition also couples Swift Australia with the Brazilian giant. The Aussie arm has four beef plants with a 5,800 head/day capacity.
The move gives Friboi more than a toehold in that part of the world and provides income from Pacific Rim beef markets that South American beef firms do not otherwise enjoy. Most have embargoed South American beef due to recurring bouts with foot-and-mouth disease (FMD).
Obviously, Friboi's swoop into North America breathes new air into Swift -- a company that's reported only one profitable quarter since November 2004. There's speculation J&F/Friboi will simply spin off Swift's assests. That's a bit hard to imagine. If Swift spin-offs are in Friboi's plan, place your bets on it selling off the pork side of Swift -- and focusing its resources on the beef side. Pork simply does not fit the Friboi business model.
No question, if and/or when NAFTA countries open to fresh beef from anywhere in either Brazil and/or Argentina, Friboi will have a ready-made pipeline north. Presently, NAFTA countries ban uncooked beef imports from Brazil due to FMD concerns. Given time, USDA will recognize at least regions of both countries as being FMD- free. Tariff rate quotas will help limit the type and amount of South American beef coming north.
The case can be made that as an ultra low-cost producer, Brazilian beef trimmings will simply replace product U.S. grinders import from other countries -- further enhancing the value of higher-fat U.S. domestic trimmings.
Similarly, Friboi's strong presence in Europe and the Middle East means another pipeline across the Atlantic for American beef products to fill -- again if and/or when those markets come open to the full array of U.S. beef products.
The beef business just got a lot more interesting with another big, strong, international fighter joining the global beef slugfest.