Former Tyson Target Diversifies into Beef

Smithfield Foods Inc. on Sept. 7 agreed to buy privately held Packerland Holdings Inc., the fifth-largest U.S. beef packer, for $250 million. Reuters reported that Smithfield plans to acquire all the outstanding capital shares of Packerland in exchange for about 3.2 million shares of Smithfield common stock and the assumption of roughly $118 million in debt and other liabilities.

The move is the latest in the consolidating U.S. meat industry, which is under pressure to provide more diverse branded products to big supermarket customers.

Smithfield, based in Smithfield, Va., has been trying to diversify since it was outbid late last year by Springdale poultry giant Tyson Foods Inc. to purchase IBP Inc. of Dakota Dunes, S.D., for $4.6 billion, including $1.7 billion in IBP debt.

Tyson was set to buy Smithfield in Dec. 1999 when due diligence showed many of the pork firm’s facilities were outdated and would require major capital for modernization. Tyson and Smithfield mutually terminated that deal.

Packerland had $1.4 billion in revenues in its most recent fiscal year ended in December. The Green Bay, Wis., firm has 4,000 employees and a daily kill capacity of 6,150 cattle. It’s the nation’s largest supplier of beef from the Holstein breed of dairy cattle.

“This is a logical fit, and not only that, I don’t think that Smithfield is done,” said Jeff Kanter, a Prudential Securities analyst. “Smithfield still has to get bigger.”

In a prepared statement, Smithfield Chief Executive Joe Luter said that after the deal, Smithfield will control roughly seven percent of the U.S. beef market. By comparison, Tyson’s buyout of IBP will give it 28 percent of the beef market.