by Katie Micik, DTN Staff Reporter
OMAHA (DTN) — National Beef Packing Company, LLC, agreed to sell a 79{fe867fa2be02a5a45e8bbb747b653fe2e9d0331fd056b85cd0c1a3542435a96e} ownership interest to Leucadia National Corporation, an equity holding company, according to a news release issued Monday evening. The purchase price is $867.9 million, according to SEC documents.
“This transaction will enable us to address the liquidity desires of USPB’s diverse producer ownership base while maintaining our highly successful cattle supply system and a sizable investment in beef processing,” Steve Hunt, CEO of USPB, said the news release. U.S. Beef is a producer-owned marketing group that owns part of National Beef. In fiscal year 2011, National Beef generated sales of $6.8 billion.
In March 2008, JBS agreed to pay $560 million for the Kansas City, Mo.-based meat processor, but that deal was stopped by federal regulators on antitrust concerns. Then in 2009, National Beef briefly flirted with an IPO offering but was spooked by market conditions.
While operations and management structure at National Beef are expected to remain the same, according to the company, the purchase represents a different kind of owner — an owner more like Gavilon, the grain company owned by George Soros’ hedge fund, than its rivals.
Leucadia’s subsidiaries span multiple industries including mining, telecommunications, healthcare services, banking and real estate. It also owns Crimson Wine Group, a set of vineyards in California and Oregon, and has done some work with an Argentine food company, according to Leucadia’s 2010 annual filing with the SEC.
Leucadia’s $1.9 billion net income in 2010 represents a sharp turnaround for the company. In 2009, its profits were only $550 million and it showed a net loss of $2.5 billion in 2008. But according to data going back to 1978, it’s only had four years showing a net loss and has a historical rate of return to investors of about 20{fe867fa2be02a5a45e8bbb747b653fe2e9d0331fd056b85cd0c1a3542435a96e}.
Steve Kay, editor and publisher of Cattle Buyers Weekly, said it’s a good time for the company to invest in beef, but it hasn’t always been. Historically, investors balked at the meat-processing business’ cyclical nature and narrow margins. All of the major packers have had wider operating margins this year, Kay said, and cattle numbers domestically are shrinking, global numbers are stagnant and yet global demand for beef is growing.
“I think they’re (Leucadia) looking at the macro and saying, it might be a good time to have an interest in a very good beef company that exports significant amounts of its product overseas,” Kay said. National Beef may be the fourth-largest packer, but it’s one of the leading exporters to hot Asian markets like Japan.
“They’ve picked up, arguably, on a per-head basis, the most profitable beef-processing company in the United States. I’ll be interested in seeing what kind of growth ensues,” he said.
Tim Klein, National’s president and CEO, said in the news release “the addition of Leucadia will widen the scope of opportunities available to us and will further strengthen our ability to expand our business and solidify our position as the premier global beef processor.”
How to grow has posed some problems for National Beef in the past, Kay said. National has wanted a northern slaughter facility for some of its U.S. Premium Beef producers in states such as Nebraska. But its options are thin, given the industry’s consolidation to date. A new influx of capital could help.
“National Beef is an extremely well run, very well operated company. I think the growth in the future is really more predicated on more value-added products,” Kay said. Of National’s $6.8 billion in sales, value-added products represented 36{fe867fa2be02a5a45e8bbb747b653fe2e9d0331fd056b85cd0c1a3542435a96e}. “That percentage has gone up steadily every year, so I suspect that’s where the growth in National Beef will come from.”
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Posted with DTN Permission by Haylie Shipp
