JBS Said to Agree to Buy Seara Food Assets From Marfrig

JBS SA, the world’s largest beef producer and controller of U.S. chicken producer Pilgrim’s Pride Corp., agreed to buy some food assets from Marfrig Alimentos SA, two people with knowledge of the deal said.

The agreement involves assets from Marfrig’s Seara Foods unit, according to the people, who spoke on condition of anonymity because the deal will be announced today. They declined to provide details or say which Seara assets are part of the deal. JBS will buy the Brazilian poultry unit of Seara for $2.5 billion to $3 billion, the Wall Street Journal reported yesterday, citing unidentified people close to the deal.

For Marfrig, the most indebted meatpacker in the Western Hemisphere, the deal means a cut in net debt that jumped sevenfold in the past five years to about 10 billion reais ($4.7 billion) as of March 31. The acquisition of Seara’s local assets would turn JBS into the world’s largest poultry producer, surpassing Springdale, Arkansas-based Tyson Foods Inc.

“Historically food has usually been a neglected sector for investment, but that’s changing,” said Victor Lean, Singapore-based managing partner of Caudex Asia, a food and agriculture private equity firm. “We’ve started a cycle where the food price trend, after decades going down, is actually heading up due to structural deficiencies in the supply chain.”

Spokesmen for Marfrig and JBS, both Sao Paulo-based companies, who can’t be named because of internal policy, declined to comment on the deal when contacted by Bloomberg News yesterday.

Acquisition DNA

Acquisitions are part of JBS’s DNA, Chief Executive Officer Wesley Batista said May 15 in an interview in which he added that the company wasn’t in active talks. Still, any deal would come a week after Batista said in an interview that JBS didn’t bid for Smithfield Foods Inc. because the price was too high.

Shuanghui International Holdings Ltd., China’s biggest pork producer, agreed to buy Smithfield, Virginia-based Smithfield for $4.7 billion in cash, or $34 a share, the companies said May 29. Smithfield is the world’s biggest hog producer.

JBS entered the chicken processing business in 2009 with the acquisition of a controlling stake in Greely, Colorado-based Pilgrim’s Pride. The company last year leased Brazil poultry plants from France’s Doux SA and Agroveneto.

Beef accounted for 64 percent of JBS’s revenue in the year ended Dec. 31, according to data compiled by Bloomberg. JBS, which has gained 19 percent since Jan. 1, generates 22 percent of its sales from chicken meat, its second-biggest revenue source, according to the data.

Marfrig Debt

Marfrig’s purchase of Seara from Cargill Inc. for $706.2 million in cash and $193.8 million in debt was completed in January 2010, according to data compiled by Bloomberg.

Marfrig owns three food-processing units under the Seara Foods umbrella: Seara Brasil, which supplies chicken nuggets, sausages and hot dogs to the Brazilian market; Keystone Foods, supplier of hamburger patties to McDonald’s Corp.; and Moy Park, in Europe, maker of ready-to-eat chicken meals endorsed by celebrity chef Jamie Oliver.

Seara Brasil’s 32 plants slaughter about 1.7 million chickens daily, according to the company’s website.

Marfrig’s net debt equals 4.4 times earnings before interest, taxes, depreciation and amortization. Marfrig aims to cut gross debt by as much as 2 billion reais, Sergio Rial, head of the food-processing unit Seara Foods, said May 14.

JBS and Marfrig officials will hold a press conference at 8:30 a.m. in Sao Paulo, according to a statement from both companies yesterday.

The JBS-Marfrig agreement was reported June 8 by O Estado de S.Paulo newspaper columnist Sonia Racy.

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