Tyson Foods Inc. reportedly has agreed to pay $2.5 billion for a segment of a Brazilian meat conglomerate that is a key chicken supplier to the McDonald's fast-food chain.
After months of consideration, the controlling shareholder of Brazil's Marfrig Global Foods, Chairman Marcos Molina, agreed on Thursday to sell chicken subsidiary Keystone Foods LLC, Reuters reported Friday morning, citing two unnamed sources with knowledge of the matter. The sources reportedly requested anonymity because the transaction had not been formally announced.
Brazilian newspaper Valor Economico noted the sale on its website early Friday, Reuters reported. The deal also was reported by Bloomberg News, citing a single unnamed source.
Tyson and Marfrig declined to comment Friday. Details of the transaction have not yet been released by either company.
Tyson Foods entered exclusive talks to acquire Keystone in late July, multiple news reports said, citing people familiar with the deal. The last acquisition of Keystone's scale that Tyson agreed to purchase was AdvancePierre for $4.2 billion in April 2017. The nation's largest meat company has since purchased American Proteins, a meat renderer, and Tecumseh Poultry, a producer of organic chickens.
In the past four months, Marfrig has updated shareholders on the pending sale of Keystone. Chief Financial Officer Eduardo Miron said during a conference call with analysts on Wednesday that one of the reasons Marfrig held its quarterly call in the United States was because the company was "very focused" on selling Keystone.
"We believe that we are going to be able to move this process to the end soon," he said.
Pennsylvania-based Keystone is one of the largest suppliers of McDonald's chicken nuggets. It has operations in seven U.S. states, South Korea, China, Malaysia, Thailand and Australia. Along with chicken nuggets, Keystone produces beef patties, chicken wings and fish filets, among other food items. The company reported revenue of $2.8 billion last year.
Marfrig shared plans to sell Keystone after acquiring a majority ownership of U.S.-based National Beef in April for $969 million., making Marfrig the world's second-largest beef processor. Marfrig plans to use the proceeds from Keystone to offset debt.
Marfrig told investors in July that it had "received binding offers for the acquisition" and planned to give timely updates about the sale. The Brazilian group announced it had narrowed the sale down to five unnamed suitors in May.
According to Bloomberg News reports, Springdale chicken companies Tyson Foods and George's Inc., were among those in talks to purchase Keystone. At the time, Marfrig reportedly expected to sell the chicken supplier for more than $3 billion. Since then chicken prices have softened as a result of key trade partners imposing tariffs on U.S. meats.
Tyson executives seemed disappointed by company earnings for the most recent quarter, particularly in the chicken segment. A week before Tyson released quarterly earnings, the company lowered its fiscal 2018 outlook on the basis of increased market volatility for domestic and foreign markets.
"Uncertainty in trade policies and tariffs" and increasing supplies of relatively low-priced beef and pork are competing with chicken, Tom Hayes, Tyson's president and chief executive officer, said during a recent call with analysts.
According to a monthly report released Thursday, the U.S. Department of Agriculture lowered its poultry export pricing forecasts for the next four quarters after shipments of broiler meat for the first half of 2018 fell short of expectations. The agency cited an appreciating dollar and weaker-than-expected demand.
During Tyson's Aug. 6 earnings call, Stewart Glendinning, Tyson's vice president and chief financial officer, mentioned two large projects underway at Tyson that would affect its distribution network. One is the new chicken plant being built in Homboldt, Tenn.
"The other one is a project we have underway to redo our distribution network, and those are some pretty heavy investments, which have a powerful payback and are important as we move forward," Glendinning said.
Farha Aslam, of Stephens Inc., updated investors on the sale Friday morning with a report titled "Tyson has Bought Keystone."
"The transaction does offer Tyson significant synergy opportunities and a solid international business, the deal does increase the Company's exposure to McDonald's, a restaurant chain that offers suppliers steady business but at thin margins," Aslam wrote in the note.
Ken Shea, a food and beverage analyst with Bloomberg Intelligence, declined to comment on the reported transaction "as the company has not yet issued a filing or press release on it... Oddly...."
Tyson shares rose $1.44 per share, or 2.36 percent, to close Friday at $62.40 on the New York Stock Exchange. Shares have traded as high as $84.65 in the past 52 weeks and as low as $56.79.
Marfrig shares climbed 8 percent on reports of the acquisition, then declined in midday trading. According to data from the B3 stock exchange in Brazil, shares fell 9.3 percent on Friday.
Business on 08/18/2018