Meat + Poultry - August 2007 - 31

JBS-SWIFT

The way in which the deal was structured was another issue. Swift owners,
HM Capital Partners and Booth Creek
Management Corp., wanted a deal that
cleared them of all future liabilities
and contingencies, say bidders. They
would not give buyers any kind of indemnification package, which is common when meat companies buy processing plants. This means JBS agreed
to pay Swift's owners $225 million in
cash, assume $1.16 billion in debt and
all closing costs (possibly $60 million).
It also agreed to be responsible for any
unforeseen liabilities it might uncover
as the new owner. In addition, it will
have to spend money on a wide range
of items that don't show up in the transaction, said one bidder.

JBS family of companies

Landscape change
Completion of the deal makes JBS by
far the dominant global beef exporter.
Swift Australia was previously the largest
and JBS second. Swift was the fourthlargest U.S. fresh meat company (third
in beef and pork). As noted earlier, JBS
will now rival Cargill globally in scope.
With two ranches and a large feedlot
in Brazil, JBS brings to mind the vast
cattle, beef and shipping business put
together by Britain's Vestey family last
century. JBS is now the third-largest
company worldwide in terms of beef
sales (after Tyson and Cargill) but the
largest in terms of cattle slaughter and
slaughter capacity. That's based on 2006
sales and slaughter data from the companies and this writer's estimates, and
on current plant capacities (see Table
1, Page 38). It also assumes JBS will
continue to operate Swift's four beef
plants in the United States and four in
Australia.
JBS's acquisition of Swift was the best
possible news for U.S. livestock producers, say observers. Market competitiveness in the U.S. live cattle and live hog
markets remains because there will be
the same number of buyers. Had Smithfield, Cargill or National acquired Swift,
at least one buyer would have disappeared. If JBS succeeds in strengthening Swift Beef, that will be another plus
34

MEAT&POULTRY

August 2007

for the entire beef complex, as well as
for cattle feeders who currently supply
Swift, say observers.
"The deal is expected to have little
immediate impact on the U.S. beef market," says analyst Steve Meyer, Paragon
Economics. "The acquisition and integration of Swift into the JBS system will
likely take time but it is not expected to
be followed by any significant cutbacks
or restructuring. If anything, Swift will
gain increased leverage in world markets, and JBS remains on an aggressive
growth path."
The acquisition might, however,
herald several changes in the U.S. beef
business. Smithfield Foods is likely to
build its proposed new beef processing plant in Hooker, Okla. A decision
was expected to be announced in midJuly. This plant has been designed to
process 5,000 head per day and would
be the first large beef processing plant
built in the country since IBP opened
its Lexington, Neb., plant in late 1990.
Smithfield would remain the fifth largest beef packer, although close in size
to National. JBS's domination of global beef exports could force Tyson and
Cargill to expand their global beef businesses in other ways. Each currently
has large plants in Canada and smaller
plants in Argentina.

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JBS's ownership of Swift might also
encourage Brazil and Argentina to press
the U.S. Dept. of Agriculture harder to
regain entry for fresh beef into the United States (currently prohibited because
of foot-and-mouth disease). JBS presumably factored in such a move when it decided to bid for Swift. It would likely use
Swift to further process and distribute
South American product. Beef end users
in the United States, such as quick-service and family restaurant chains will be
keen to access Brazilian and Argentine
beef because U.S. beef supplies, particularly of manufacturing beef, will remain
tight, say analysts. Right now, Argentina
might be 12 months away from gaining
USDA clearance while Brazil is further
away, say observers.

Strategic approach
All eyes will be on JBS as it more fully evaluates Swift's operations and decides what changes and improvements
to make. The Batistas are renowned for
their hands-on approach to the business (Wesley Batista was JBS's executive director of operations). But now
they have to prove to public shareholders and other investors they can make
their acquisition of Swift economically viable, say analysts. To do that, JBS
will have to significantly improve the

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