Tyson Foods has made no bones about its desire to grow through acquisition when it makes sense from a financial and operations standpoint.
The Springdale-based meat giant is still in the midst of merging with Keystone Foods, a $2.16 billion deal that closed in November. CNBC is now reporting Tyson Foods has been in talks to acquire California-based Foster Farms.
Tyson Foods does not comment on rumors, but the company did recently pull out of the CAGNY Investor Conference scheduled Feb. 18-22 in Boca Raton, Fla., which caused speculation the company was in the midst of merger talks.
Tyson Foods CEO Noel White told analysts in November the company’s growth strategy was to expand the prepared foods segment, grow value-added products and increase international footprint. He said the center of his mission is also working to provide stability with more of the commodity portions of the business.
Foster Farms is privately owned and operates eight processing plants (six chicken and two turkey) in California. The company also operates chicken processing plants in Corvallis, Ore., and Kelso, Wash. In the South, there is a chicken processing facility in Farmington, La., and a cook plant located in Demopolis, Ala. Foster Farms employs about 12,000 across its operations and has annual revenue of about $2.4 billion.
The company sells fresh chicken and turkey to retailers as well as frozen foods such as corn dogs, frozen chicken strips, deli products, ready-to-cook chicken breast strips, chicken franks and chicken sausage. The company also has a small line of ready-to-eat protein snacks which are sold in the refrigerated section of the grocery store — Bold Bites (spicy chicken nuggets) and honey sriracha chicken. The company has a foodservice segment that sells ready-to-cook chicken and turkey products along with the Mexican brand Fernando’s, which is a full line of products sold to convenience stores, schools and restaurants.
The obvious gain for Tyson Foods would be market share in the Pacific Northwest, where the company has no poultry facilities. Tyson Foods also has a limited presence in Alabama and no facility in Louisiana. Looking at the how the brands align, it’s not clear how Tyson Foods might benefit from the much smaller Foster Farms deli meats and foodservice business. Foster Farms does have strong brand recognition for fresh chicken in the Pacific Northwest, and that could benefit Tyson Foods in terms of growing overall market share. That said, Tyson Foods already has the No. 1 market share in terms of processed chicken, and the company also has a small turkey business that serves its needs.
News reports indicate talks between the two companies broke down over price, which was reportedly around $2 billion. Tyson Foods is still in the midst of paying down debt from the Keystone Foods acquisition and while it could afford another $2 billion deal it would push the leverage ratios a bit, which could result in a slightly lower credit rating by analysts from Moody’s or S&P.
Tyson Foods has said it is committed to keeping its investment grade rating but it would fully evaluate any opportunity that helps the company reach its long term goals to grow sales and reduce the volatility of commodity exposures by selling more higher-margin products.
Shares of Tyson Foods (NYSE: TSN) traded lower on Tuesday, (Feb. 5) following news of the talks. Shares were trading at $61.59, down 19 cents, while the broader markets moved higher. Tyson Foods will report earnings on Thursday (Feb. 7) ahead of the market opening and analysts expect profits will be roughly 14% lower than a year ago.
Tyson Foods will also hold its annual shareholder meeting in Springdale on Thursday and elect a new slate of directors to a one-year term.