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Wednesday, May 30, 2007

Swift jumps into a global merger (Salt Lake Tribune)

Brazilian company buys out the raids-plagued meatpacker to consolidate into world's beef giant

Tribune Staff and Wire Services

Meatpacker Swift & Co., the target of huge immigration raids at plants in Utah and elsewhere last year, is being sold to a Brazilian company in a $1.4 billion deal that will create the world's largest beef processor.
J&F Participagues S.A., owner of 77 percent of Brazil's JBS S.A., Latin America's largest beef processor, will acquire Swift for $225 million in cash. J&F will assume approximately $1.2 billion in Swift's debt plus all transaction-related expenses.
Swift, the country's third-largest processor of beef and pork, is owned by private equity firm HM Capital - formerly Hicks, Muse, Tate & Furst - and ski resort mogul George Gillett's Booth Creek Management. It has reported only one profitable quarter since November 2004, when U.S. beef exports to Asia fell after cases of mad-cow disease were found in some American cattle.
There is little overlap in the operations of the Brazilian company and Swift - the latter will retain its identity and employees - so officials don't expect the buyout to affect Swift's plants in Hyrum or five other states.
"Swift is still owned by HM Capital and the deal won't be completed until late July. But based on what we know today, there is no reason to believe there will be significant operational changes at Swift," Swift spokesman Sean McHugh said from company headquarters in Greeley, Colo., north of Denver. "These are assets that don't come around very often."
Those assets are not as valuable as they once were, however.
In December, federal immigration authorities rounded up nearly 1,300 workers at Swift plants in Colorado, Minnesota, Iowa, Nebraska, Texas and Utah. The six plants represented all of Swift's domestic beef processing capacity and 77 percent of its pork processing capacity.
Swift initially estimated the financial effect of the raids at $30 million but has raised that estimate to as much as $50 million because it took longer than expected to return the beef plants to full production, which caused higher costs and led to lost business opportunities.
Although the company said last month that it has refilled positions left vacant as a result of the raids, the Hyrum plant has struggled to replace the 150 undocumented workers arrested in December. McHugh said the Utah operation employs 1,000 workers, compared with 1,100 before the raids. McHugh said the company's "desired" staffing level is 1,050.
"Our Hyrum operation is well on its way to recovery. But we still are hiring," McHugh said, adding that Swift has the baseline staffing necessary to carry out day-by-day operations.
The sale of the E.A. Miller meatpacking plant, as Swift's operation is known in Hyrum, was met with shrugs by some employees Tuesday afternoon, who had been hearing rumors of a possible sale for at least a year.
"As long as they don't cut my paycheck, it doesn't matter," said one employee, who declined to be identified because a company memo advised workers not to talk with the media.
Employees in Hyrum said they were told to expect no substantial changes.
Industry analysts note that with Japan and South Korea having eased some of the restrictions against U.S. beef, and the U.S. government pushing to eliminate remaining barriers, the global merger between the two meat-processing giants comes at an opportune time.
Swift spokesman McHugh said, ''Exports are down, but you have a buyer in JBS that is a very strategic player and has taken a long-term view of the global industry.''
The acquisition will give JBS access to the United States, the world's top consumer of beef, and open Asian markets, which ban imports from Brazil. The combined company will have annual revenues of about $12 billion.
The announcement comes about four months after Swift said it had hired banker JPMorgan to help consider a potential sale.
Many of the workers swept up in the December raids - 1,282 in all - had phony identification. Swift said it complied with the law and checked identification before hiring employees.
The raids had nothing to do with the sale, said Edward Herring, a partner in Dallas-based HM Capital.
''We had been approached by a number of strategic parties about a year ago and engaged in dialogue last summer and fall,'' Herring said. ''We viewed the immigration issues as a temporary blip, nothing structurally that the company and the industry can't get over.''
Herring wouldn't discuss other bidders for the company, but Cargill Inc., Smithfield Foods Inc., National Beef Packing Co. and Seaboard Corp. had all reportedly been interested.
The deal is better for American livestock producers than a sale to a U.S. company, which would have reduced competition for pork and beef, said Steve Kay, editor of Cattle Buyers Weekly. ''This is the best possible news for livestock producers because, far from any consolidation of ownership in the U.S. industry, we have added a brand new owner.''

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