March 26, 2009 3:07 am

Tyson Foods could seek pork, red meat buys in China, India, Brazil, Argentina

This article is provided to FT.com readers by mergermarket—a news service focused on providing actionable, origination intelligence to M&A professionals. www.mergermarket.com
--------------------------------------------------------------------------------------------------------

Tyson Foods (NYSE:TSN), the largest US meat producer, could acquire pork and red meat companies in China, India, Brazil and Argentina, a source familiar with the company’s strategy told mergermarket.

Declining US demand, a growing and relatively fragmented international market, and the ability to save on production costs are likely to drive more acquisitions in those regions, said the source.

A spokesperson for the Springdale, Arkansas-based company confirmed it is focused on building its international markets, and when asked further, identified India, China and South America as geographies for desired expansion.

China, which accounted for approximately 11% of Tyson International sales, is a country particularly targeted for further growth, said the source. A Shanghai-based banker said it was his understanding that Tyson was seeking red meat and possibly pork acquisitions in China, and noted that the sector is open to foreign investment. Chinese companies are often receptive to large corporations like Tyson, which have more sophisticated health and safety standards, he said.

In the latter part of 2008, Tyson purchased 60% of Shandong Xinchang Group assets and a new plant outside Shanghai to sell to the Yangtze River Delta market. Tyson will invest more than USD 200m in that venture, according to regulatory documents. Shandong, whose business includes chicken and duck breeder and broiler farms, feed mills, and hatcheries, had estimated sales of about USD 345m and is one of three Tyson joint ventures.

An industry analyst suggested NASDAQ-listed Zhongpin, based in Changge, could make a suitable acquisition for Tyson. Zhongpin, with a market capitalization of nearly USD 243m, had more than USD 201.3m in annual sales in 2007. Its products include chilled pork, frozen pork, pig by-products and prepared meats.

A source at Zhongpin Food said the company would be interested in talking to Tyson regarding a potential acquisition. “Compared with its business of chicken meat processing, Tyson’s beef and pork processing businesses are weak in China,” the company source said. The meat processing industry in China is facing consolidation, and Zhongpin Food has much room for growth, the source added. Any decision, however, would be made by the largest shareholder, Xianfu Zhu, the chairman of the board.

Tyson is well-positioned to consolidate smaller companies under financial pressure, according to the source familiar with that company’s strategy, pointing out that it recently issued USD 810m in notes and secured a USD 1bn senior credit facility. The company may spend up to USD 300m on international acquisitions, estimated the source, while an analyst noted its previous foreign buys have been in the USD 50-150m range.

It could buy partial stakes of larger companies to gain advantage through partnership, as well as look to acquire smaller companies, added the source.

In India, Tyson has a joint venture with Godrej Agrovet, to produce and market poultry there. The market in India is even less developed than in China, and opportunities are believed to exist there, said the source.

Brazil, the world’s largest chicken exporter and third-largest chicken producer behind the US and China, has a growing middle-class that will increasingly consume chicken, and provides Tyson with a foothold to export to other countries, explained the source. In September, Tyson agreed to purchase Macedo Agroindustrial and Avícola Itaiópolis (Avita), each of which are located in the state of Santa Catarina, as well as 70% of Frangobras, located in the state of Paraná.

Argentina, where Tyson participates in a joint venture with Cresud S.A.C.I.F. y A, includes a feedlot which can lower feed costs for Tyson, and help it further gain access to markets in South America and Europe, said the source.

In addition to lowering costs and granting proximity to key markets, a diverse geographic footprint allows Tyson to continue production in the event of a disease outbreak, the source said. If the Avian Flu started in Brazil, for example, exporting meat from that region would be banned. However, Tyson could continue production at its other facilities in China.

--------------------------------------------------------------------------------------------------------

For more information or to inquire about a trial please email sales@mergermarket.com or call EMEA: + 44 (0)20 7059 6105 Americas: +1 212 686-5277 Asia-Pacific: +852 2158 9730

Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.