Brazil-based companies now—or will soon—hold majority interests in two of the major meat packers in the United States. Last week Marfrig Global Foods, based in Sгo Paulo, Brazil announced it has reached an agreement to purchase 51 percent interest in National Beef Packing, headquartered in Kansas City, MO. The other Brazil-based U.S. meat packer is JBS USA a subsidiary of JBS S.A.
According to a company press release, Marfrig has agreed to pay $969 million for all of National’s business segments, which include beef processing plants in Dodge City and Liberal KS, consumer-ready operations in Hummels Wharf, PA, and Moultrie, GA; as well as a leather tannery in St. Joesph, MO. National Beef is currently the fourth-largest beef processor in the United States.
When the transaction is complete, Marfrig will become the world’s second-largest beef processor with consolidated sales of $13 billion USD. Marfrig Customer Service Executive, Andrezza Queiroga, told WLJ the pending issues to the purchase are the endorsement of the U.S. antitrust authority and the approval of the National Bank for Economic and Social Development. Pending approvals, the transaction is expected to close in the second quarter of 2018.
In 2008, JBS S.A. announced its intent to purchase National Beef, but the move was blocked when the U.S. Department of Justice filed a civil antitrust lawsuit.
National Beef was founded in 1992 and reported sales of $7.3 billion in 2017 and, since 2011, has been controlled by Leucadia National Corporation, which currently holds a 79 percent interest. Once the transaction closes, Leucadia will transfer control to Marfrig and remain a minority shareholder in National Beef, with a 31 percent interest. U.S. Premium Beef, an association of American producers, will hold 15 percent, and other shareholders will hold the remaining 3 percent. Leucadia and the other investors have agreed not to sell their shares in National Beef for at least five years.
Queiroga told WLJ, “Leucadia and other investors are committed to maintaining their holdings for the next five years as they show confidence in the fundamentals of the company and the future of the business.”
The key executives of National Beef—including CEO Tim Klein—will continue to manage and remain at the company. The board of managers of National Beef will consist of nine members, of which five will be nominated by Marfrig, two by Leucadia and two by the other minority members.
“I am excited to welcome the Marfrig group as a partner in National Beef,” said Klein. “Their broad global food platform will further strengthen our efforts to build our brand in new and existing markets as the demand for high quality U.S. beef grows. This transaction will be transparent to our valued employees, suppliers and customers.”
National Beef has a slaughtering capacity of 12,000 head of cattle per day, accounting for approximately 13 percent of the total U.S. cattle slaughtering capacity. It currently exports to 40 countries, including Japan, which is a market currently closed to beef exports from Brazil.
The deal reportedly achieves two key objectives for Marfrig, outlined in its strategic plan. First, it consolidates its strong position in the beef industry, which is the Marfrig’s original core business. In 2017, Marfrig reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $516 billion ($1.7 billion BZ real). With National Beef, its pro-forma EBITDA will increase to $1.0 billion ($3.4 billion BZ real).
The second key objective the transaction achieves is improving Marfrig’s leverage ratio. Upon closing, Marfrig will consolidate 100 percent of the results of National Beef. Last year, Marfrig’s total debt corresponded to 4.55 times its EBITDA. With the acquisition, this ratio decreases to 3.35 times. The transaction will be financed by a loan from Rabobank.
“The acquisition of National Beef represents the realization of a unique opportunity,” said Martнn Secco, CEO of Marfrig. “With the transaction, we will have operations in the world’s two largest beef markets, will gain access to extremely sophisticated consumer countries and will be able to grow while maintaining rigorous financial discipline.”
In a joint statement, Rich Handler, CEO of Leucadia, and Brian Friedman, president of Leucadia, said, “We are pleased to remain a significant shareholder in National Beef and to partner with Marfrig and the company’s management team in its continued development.”
They also said, “National Beef is an outstanding company and we are excited to continue our partnership with Tim Klein and the rest of the National Beef team. We are also pleased to welcome Marfrig as a partner in the company and believe the expanded partnership group will only enhance National Beef’s ability to serve its customers on a global basis.”
Other measures to deleverage Marfrig are in place including the decision to sell Keystone Foods, a leading supplier of high-quality, value-added food products to the world’s leading foodservice, retail and convenience, and industrial brands. Marfrig noted in its press release that the sale of Keystone together with the National Beef transaction should help it to achieve its goal of reaching a leverage ratio of 2.5 times by the end of 2018. “The acquisition of National Beef reflects our sustainable growth strategy,” said Marcos Molina, chairman of the board of directors of Marfrig Global Foods. “From now on, we have become the Brazilian company of the sector with the best financial health, proved into the lowest rates of leverage.”
Queiroga told WLJ, “We are always evaluating market opportunities, and acquiring control of National Beef is the materialization of a unique opportunity.”
According to its website, Marfrig has 31 production units in Brazil, Uruguay and Chile and four distribution centers. The company has the capacity to process up to 4.7 million head of cattle.
National Beef employs approximately 8,200 people in the U.S., none of whom are expected to be impacted by the sale. Additionally, Queiroga said livestock suppliers will not be affected. — Rae Price, WLJ editor
