Growth Through Acquisition
Smithfield Foods, Smithfield, VA, has made numerous acquisitions en route to becoming a $10 billion company. Since 1981, the company has made more than two-dozen acquisitions, both in the United States and abroad. Today, the company is the world’s largest pork processor and hog producer, as well as the nation’s fifth-largest U.S. beef processor. Smithfield also owns subsidiaries in the United Kingdom, France, and Poland, and operate joint ventures in Mexico, Spain, and China. (see chart)
“Smithfield opportunistically pursues acquisitions that complement its core strategies,” says Kiera Ullrich, investor relations manager at Smithfield Foods. “Smithfield generally acquires companies that trade at lower multiples than it and attempts to make acquisitions during depressed industry conditions.”
In November of 2004, Smithfield paid $83 million to acquire meat processors in Poland and Romania. Smithfield’s Animex Group, the largest meat processor in Poland, purchased Morliny S.A., which has sales of more than $100 million. The Animex Group now produces the two best-recognized brands in Poland, Krakus and Morliny, and consists of four red meat plants and four poultry plants.
|Domestic Growth |
|Gwaltney of Smithfield Ltd. ||1981 |
|Patrick Cudahy ||1984 |
|Esskay ||1986 |
|Valleydale ||1993 |
|John Morrell & Co. ||1995 |
|Lykes Meat Group ||1996 |
|North Side Foods Corp. ||1998 |
|Quik-to-Fix Foods ||2001 |
|Moyer Packing Co. ||2002 |
|Packerland Holdings ||2002 |
|Stefano Foods ||2003 |
|Cumberland Gap ||2003 |
|Farmland Foods ||2003 |
|SBS (France) ||1998 |
|Animex (Poland) ||1999 |
|SFGP (France) ||1999 |
|Norson (Mexico JV) ||1999 |
|AFG (China JV) ||2001 |
|Campofrío (Spain) ||2004 |
|Acquired 22% stake |
|Smithfield Foods Ltd. (U.K.)||2004 |
|Jean Caby (France)||2004 |
|Agrotorvis (Romania)||2004 |
|Morliny (Poland)||2004 |
|Comtim Group (Romania)||2004 |
|Vertical Integration |
|Carroll’s Foods Inc. ||1999 |
|Murphy Farms Inc. ||2000 |
|Vall Inc. ||2003 |
|Alliance Farms ||2003 |
|MF Cattle Feeding ||2004 |
|ContiBeef JV ||2005 |
Smithfield also purchased Comtim Group SRL, its second acquisition in Romania. It is a vertically-integrated meat processing company that has hog production facilities with a capacity of 15,000 sows. Currently the company produces 200,000 market hogs annually.
“These acquisitions strengthen our presence to capitalize on marketing opportunities to develop the protein marketplace in Eastern Europe as these markets emerge,” said Robert Sharpe II, president of international operations. “Also, by coordinating manufacturing and marketing advantages, we will be well-positioned as Europe continues to evolve toward one marketplace.”
Domestically, Smithfield has been very active in the cattle-feeding business. Last October, the company acquired MF Cattle Feeding Inc. from ConAgra Foods Inc., adding three feedlots in Colorado and one in Idaho. The capacity of the feedlots is 357,000 head.
“This move addresses our cattle procurement concerns west of the Mississippi River and provides a new earnings stream for our business,” said Richard Vesta, president of Packerland Holdings, the Smithfield subsidiary that took over operation of the feedlots.
This February, MF Cattle Feeding and ContiBeef LLC, a subsidiary of ContiGroup Companies Inc., agreed to form a 50/50 joint venture cattle feeding business. The new entity has 10 feedyards located in Colorado, Idaho, Kansas, Oklahoma, and Texas with a feeding capacity of 811,000 head.
The joint venture will be a stand-alone operating company, independent of ContiGroup and Smithfield, although financing for the venture will be provided by the two companies, as well as a non-recourse senior credit facility arranged by Rabobank International.
“ContiBeef is one of the largest cattle feeding operations in the world,” says Ullrich, “and is recognized as a leader in cattle feeding, with nearly two hundred years of experience in agribusiness.”
Mike Thoren, president and chief executive officer of ContiBeef, was named president and chief executive officer of the new company, which is headquartered in Boulder, CO. “We believe the merger is an exciting growth opportunity for both businesses, their employees, and for the cattle industry as a whole,” he said. The company will sell cattle to multiple beef packing firms throughout the United States.