Tyson Foods completes Keystone deal with $1.8 billion in additional funding

Tyson Foods announced late Friday (Nov. 30) the $2.2 billion acquisition of Keystone Foods has closed. This purchase includes eight plants and three innovation centers in China, South Korea, Malaysia, Thailand and Australia that Tyson said will help meet its growing international protein demand. The deal also includes six processing plants in the U.S. with locations in Alabama, Georgia, Kentucky, North Carolina, Pennsylvania and Wisconsin.

“Our biggest growth opportunities are in value-added foods and international markets. Our acquisition of Keystone helps us achieve both,” said Noel White, president and CEO of Tyson Foods.

“The addition of Keystone’s team, industry expertise and international operations strengthens our capabilities. I’m pleased to welcome our newest team members to the Tyson Foods family,” White added.

He said Tyson will work to make the integration of Keystone as seamless as possible while maintaining high levels of service to customers. Tyson has formed an integration management office with leaders from each company who will take the lead in the integration process..

“I look forward to all we can accomplish together as one Tyson Foods,” White said.

Tyson Foods has said it would secure additional financing for the acquisition. The meat giant filed loan documents with the Securities & Exchange Commission on Friday, Nov. 30 detailing a $1.8 billion loan with a 354-day term. Tyson is securing the loans from its creditors and will pay roughly prime rate plus 0.5% for the term of the loan.

Accessing this additional funding pushes Tyson’s debt levels higher, but Moody’s credit analyst Brian Weddington recently gave Tyson Foods a stable outlook with a Baa2 rating on $1 billion in additional funding secured last month used to refinance some debt and partially fund the Tecumseh Poultry acquisition of $382 million.

While Tyson’s credit rating is investment grade, the recent Baa2 rating is nine layers below the top rating by Moody’s and securities with the Baa2 rating are subject to moderate credit risk and considered medium grade. Moody’s said it would consider downgrading Tyson’s ratings if liquidity or operating performance deteriorates. The rating agency could also consider a downgrade if debt/EBITDA is sustained above 2.75 times, or the aggregate of cash and external liquidity sources falls below $1.0 billion. At the end of June, Tyson’s debt/EBITDA stood at 2.42 times, annualized for the quarter.

Likewise, Moody’s would consider upgrading Tyson’s ratings if the company continues to improve business diversity and earnings stability. Weddington said the ratings could be upgraded if debt/EBITDA is likely to be sustained below 2.0 times and the company maintains combined cash and external liquidity sources of at least $1.5 billion.

Shares of Tyson Foods (NYSE: TSN) finished the week higher closing at $58.95, up $1.23. For the past 52 weeks, Tyson shares have traded between $56.36 and $84.65. Year-to-date Tyson shares are down 27%.