U.S. seen approving a JBS-Pilgrim's Pride deal
CHICAGO - Brazilian meat giant JBS would likely get U.S. antitrust approval if it decides to buy U.S. chicken producer Pilgrim's Pride even though the already concentrated American meat market would lose yet another player.
While buying Pilgrim's Pride would give JBS USA $23.9 billion of sales, within striking distance of No. 1 Tyson with $26.9 billion, the deal would not give JBS enough market power in the chicken business to worry regulators, experts said.
Published reports on Wednesday said JBS is close to a deal to buy Pilgrim's Pride for more than $2 billion. JBS denied it was committed to any deal and Pilgrim's Pride had no comment.
JBS is already the third-largest beef producer, after Tyson and Cargill, and the third-largest pork producer, after Smithfield and Tyson. This deal would make it the second-largest chicken producer, after Tyson, with about 18 percent of the market.
While this would seem to give it considerable clout in the meat market and while consumers may reach for chicken if the price of beef goes up, antitrust regulators think differently.
Meat is not interchangeable. Beef is a market, pork is a market, chicken is a market, said Andre Barlow, an antitrust lawyer with Doyle Barlow and Mazard who believed the deal would win approval by U.S. antitrust regulators.
John Briggs, an antitrust expert with the law firm Axinn Veltrop Harkrider LLP, agreed. I would be very surprised if that ran into any serious antitrust scrutiny, he said.
Still, regulators could require selective divestiture in areas where JBS is particularly strong, said Richard Brosnick, a New York City-based antitrust attorney with Butzel Long.
The exception is that there may be isolated markets. There may be a pocket of the country that these distributors (JBS and Pilgrim's Pride) have 60 or 70 percent of the meat market, said Brosnick.
PRICE SEEMS REASONABLE
The reported $2 billion-plus price that JBS would likely pay for Pilgrim's Pride drew approving comments.
They could pay off the bonds and the notes and even give Bo (Pilgrim) a couple of million, said Paul Aho, an economist with the consulting firm Poultry Perspective. Bo Pilgrim is senior chairman of Pilgrim's Pride.
U.S. livestock and poultry industries have lost money this past year, hurt by high feed and fuel prices and by slow meat sales, said Ron Plain, University of Missouri agricultural economist.
There are a number of livestock and poultry firms that have lost a lot of money and are ripe to buy, said Plain.
Pilgrim's Pride filed for bankruptcy in late 2008 because of such pressures and as it was burdened by debt from its purchase in late 2006 of Gold Kist Inc.
The idea of JBS, which is primarily a beef company, buying a chicken company still has some people scratching their heads.
I'm surprised at this potential move by JBS because they have always given the indication that they are going to focus primarily on the beef industry, said Steve Kay, editor of Cattle Buyers Weekly. Buying an extremely large poultry company would take them totally out of their comfort zone in operational terms.
Pilgrim's Pride shares closed up 27 cents, or 5.24 percent, at $5.42 in Pink Sheet trading. In Brazil, JBS shares were up 14 cents, or 1.8 percent, at $7.87 (Editing by Christian Wiessner and Steve Orlofsky)
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