Tyson Foods acquires poultry rendering assets in $850 million deal

Tyson Foods announced Tuesday (May 15) plans to acquire the poultry rendering assets of American Proteins and AMPRO Products for $850 million. The deal will allow the company to recycle more animal products for feed, pet food and aquaculture and expand its animal feed business footprint.

The acquisition includes four rendering plants in Georgia and Alabama and 13 blending facilities in southeastern and midwestern states. The facilities are expected to provide additional capacity to Tyson Foods’ animal byproducts business. Approximately 700 people work for American Proteins and most are expected to join Tyson Foods as a result of the deal.

The acquisition is subject to regulatory approval, but is expected to close in the next six months.  In a company news release, Tyson Foods said over the next year the acquired operation will generate more than $550 million in sales revenue. The company expects to see operational efficiencies and related cost savings driven by manufacturing efficiencies, mix optimization and distribution network consolidation, though no initial dollar values were given in the release.

“Rendering plays a key role in growing our business and helping us deliver on our sustainability goals,” said Tyson Foods President and CEO Tom Hayes. “Through this important business, no part of the animal goes to waste, and we can recycle valuable ingredients into feed for pets and aquaculture.”

Tyson Foods operates more than 24 animal nutrition facilities in the U.S. The plants, mostly connected to chicken processing plants, render parts not sold for the human food chain into pet foods and animal feed ingredients. Older breeder hens are also rendered into pet foods.

“This acquisition is a great complement to our existing business, gives us the ability to render raw materials in a region we don’t currently serve, and better positions us to meet the competitive, fast-growing national and global demand for animal protein,” said Doug Ramsey, group president of poultry for Tyson Foods.

Ramsey said Tyson Foods admires the work and business acumen they are acquiring with American Proteins and AMPRO Products. He said the deal is a good cultural fit for Tyson Foods. Tyson Foods said the deal is an example of ways the company os working to improve sustainability and keep its products from ever reaching landfills.

According to the National Renderers Association, rendering’s contribution to carbon emission reduction in the U.S. and Canada is equivalent to removing more than 12 million cars from the road annually.

The deal was viewed by the investment community as a slight drain on earnings in the near-term. Tyson Foods has suspended its share buyback program until it gets debt levels down to  2X EBITDA (measure of earnings before interest, taxes, depreciation and amortization). This acquisition may delay the debt reduction goal from what was believed to be reached in the third quarter. Tyson reported its net debt to EBITDA was 2.7% at the end of the second quarter that ended March 31. Tyson has slightly less than $1 billion in free cash, but said it was aiming for the $1 billion level.

Shares of Tyson Foods (NYSE: TSN) traded lower Tuesday on the news. Shares traded at $66.86 down 77 cents in the morning session. Over the past 52 weeks Tyson shares have traded between $57.20 and $84.65. Year-to-date Tyson shares are down 17.54%.