Tyson to break off hog division

Federal settlement paves way for Hillshire acquisition

Tyson Foods Inc. has agreed to sell its Heinold Hog Markets division, clearing the way for its $7.8 billion acquisition of Hillshire Brands Co.
Tyson Foods Inc. has agreed to sell its Heinold Hog Markets division, clearing the way for its $7.8 billion acquisition of Hillshire Brands Co.

Tyson Foods and Hillshire Brands have reached an agreement with the Antitrust Division of the Justice Department that requires Tyson to operate its Heinold Hog Markets division as an independent business in order to acquire Hillshire.

The settlement was filed Wednesday with the U.S. District Court for the District of Columbia. It is subject to approval by the court under procedures set forth in the Antitrust Procedures and Penalties Act.

Iowa, Illinois, Missouri -- the states ranked first, fourth and seventh in hog inventory, respectively -- and the federal government filed a complaint that stated the acquisition would "lessen competition substantially" for the sows in those states. Sows are female pigs raised for the purpose of breeding hogs.

"This whole thing is about sows, which is a little part of the overall hog market, but it's an important enough piece. It's money for the guys who are involved," said Layne Lindebak, assistant attorney general for Iowa. "The merger was going to eliminate one purchaser of sows. Essentially, this arrangement preserves the same number of independent outlets for sellers."

Lindebak said the states that signed on were the ones where both companies had large footprints. Arkansas is not a major hog-producing state.

The states and the Antitrust Division had initially sought for Tyson's acquisition to be blocked, according to the complaint. The states, the federal government and the companies signed on to the final agreement, which allows the acquisition.

The combined Tyson-Hillshire hog purchasing business would have accounted for about 35 percent of all purchases in the market, the complaint states.

Heinold purchases sows from farmers and sells them to meat packers, including Hillshire. The division comprises $270 million of Tyson's $34.4 billion in revenue and buys from 2,400 farmers. In 2013, it purchased 660,000 sows and paid farmers $150 million, or $227 per head on average, according to documents filed with the court.

Heinold has buying stations throughout the Midwest that procure sows directly from farmers, sort the sows and ship them, according to the complaint.

Hillshire is "one of only a few packers" that also purchases directly from farmers, according to the complaint. The company purchased 250,000 sows from farmers in 2013 and paid $80 million, or $320 per head on average, according to documents filed with the court. The complaint states that Hillshire sometimes pays more because its sow slaughtering facility is in Newbern, Tenn., far away from many hog producers.

Food & Water Watch, a watchdog group focused on government regulation of food, water and fish production, helped organize a letter to the Antitrust Division opposing Tyson's acquisition of Hillshire. Patrick Woodall, research director for the organization, said the settlement helps hog farmers, but perhaps not meat prices in the grocery store.

"We were very concerned about the effect this merger would have on hog farmers and were glad the Justice Department recognized the importance of buying power," he said. "But it does little to protect consumers in a much more consolidated pork processors market."

The proposed final judgment will be published in the Federal Register and open for public comment. In past news releases, Tyson has said it expects to close the deal by Sept. 27.

In a news release Wednesday afternoon, Tyson said the Federal Trade Commission terminated an imposed waiting period, but Tyson's offer remains subject to other conditions.

Tyson's offer to acquire Hillshire was set to expire at midnight Wednesday, unless it is further extended, the release states.

"There's a 60 day period that includes 30 days for comments and 30 for the court to review them," said Gary Mickelson, a Tyson spokesman, in an email. "However, this period does not preclude the acquisition from being completed."

The federal government had proposed taking Tyson to court to prevent the acquisition, according to documents filed with the court.

"The United States is satisfied, however, that the divestiture ... will preserve competition in the market for the purchase of sows from U.S. farmers," a document stated.

Business on 08/28/2014

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