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By Carlos Caminada and Francisco Marcelino
Sept. 4 (Bloomberg) -- JBS SA, the world’s largest beef producer, may buy bankrupt poultry company Pilgrim’s Pride Corp. in the U.S. as early as next week to resume its global expansion, two people familiar with the talks said.
JBS will tap about $1.2 billion of cash and $500 million of revolving credit lines to buy Pittsburg, Texas-based Pilgrim’s Pride, said one of the people, declining to be identified because the information isn’t yet public. JBS is also considering acquisitions in Brazil, the person said.
Chief Executive Officer Joesley Mendonca Batista turned JBS into the top meatpacker, processing about 10 percent of the world’s red meat, after buying Swift & Co. in 2007 and two Smithfield Foods Inc. units last year. JBS has been raising funds for acquisitions after the economic contraction led rivals worldwide to post losses and struggle for cash.
“This could be another success story,” Denise Messer, an analyst at Brascan Corretora in Rio de Janeiro, said in a telephone interview. “JBS has a track record of buying companies in dire straits and turning them around.” She raised JBS’s rating to “market perform” from “underperform” on Aug. 13.
The purchase of Pilgrim’s Pride may be valued at $2.5 billion, the Wall Street Journal reported on its Web site Sept. 2, citing people familiar with the matter it didn’t name.
‘Putting Crisis Behind Us’
“We are putting the crisis behind us and getting back on track,” Batista said in Sao Paulo on Aug. 13. “This is a company that grows through acquisitions and organically.”
There’s currently no “firm” agreement that justifies a formal announcement, JBS said in an Sept. 2 regulatory filing in response to news reports that it may buy Pilgrim’s Pride.
Vanessa Esteves, a spokeswoman for JBS in Sao Paulo, told Bloomberg News last night that the company has nothing to add to the statement. Pilgrim’s Pride spokesman Ray Atkinsondeclined to comment in an e-mail.
JBS rose 0.8 percent to 7.93 reais, paring earlier gains of as much as 2.3 percent, in Sao Paulo trading today. Pilgrim’s Pride fell 5 percent in New York, after plunging as much as 10 percent.
JBS paid $225 million for Swift in 2007, assuming $1.2 billion of debt, and $580 million for the Smithfield beef- processing and cattle-feeding operations last year.
Bankruptcy
Pilgrim’s Pride sought bankruptcy protection in December, citing rising grain costs and a poultry surplus that led to four consecutive quarterly losses. The supplier to Wal-Mart Stores Inc. and Yum! Brands Inc.’s KFC restaurants listed assets of $3.75 billion and debt of $2.72 billion in its bankruptcy filing.
JBS, which sold $700 million of five-year bonds in international markets in April, had 2.3 billion reais ($1.2 billion) of cash at the end of the second quarter, according to its earnings report. Batista said JBS may draw from revolving credit facilities for $400 million in the U.S. and A$200 million ($167 million) in Australia.
The company’s U.S. unit has filed to hold a $2 billion share offering, without giving a time frame.
JBS was cut to “hold” from “buy” at Banco Santander SA on Aug. 11, partly on concern that the planned share offering by its U.S. unit would lead to more acquisitions.
Pilgrim’s Pride was formed in 1946 when Aubrey Pilgrim and a partner, Pat Johns, bought a feed store for $3,500. The company took on debt and surpassed Tyson Foods Inc. in production in 2007 when it bought Atlanta-based Gold Kist Inc. for $1.1 billion.
To contact the reporters on this story: Carlos Caminada in Sao Paulo at atccaminada1@bloomberg.net
Last Updated: September 4, 2009 17:02 EDT
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