March 15, 2017

Brazilian global meat giant JBS announced that JBS USA has agreed to acquire Plumrose USA from its parent company, Danish Crown A/S for $230 million.

The deal for the bacon, ham, and deli meat manufacturer includes five prepared foods facilities spread across Indiana, Iowa, Mississippi, and Vermont, and two distribution centers in Indiana and Mississippi. After closing, JBS plans to take over operations at all Primrose USA sites.

The addition of Primrose will also give JBS a company with revenue of approximately $500 million per year, and is expected to expand the JBS portfolio into the prepared foods and value-added segments.

“Today’s announcement is further demonstration of our commitment to disciplined growth through strategic acquisitions that further diversify our product portfolio, expand our branded offerings and strengthen our direct relationship with consumers,” said Andre Nogueira, CEO, JBS USA Food Company.

The expansion of its presence in the prepared foods category has been reflected in deals pursued by JBS in recent years including the purchase of Seara – Brazil’s third largest chicken exporter and prepared pork and poultry business, from Marfrig for $3 billion; the acquisition of Moy Park, the British unit of rival Marfrig Global Foods SA for a net price of $1.5 billion; the acquisition of Primo Smallgoods – an Australian meat supplier for $1.25 billion; the acquisition of Cargill’s U.S. pork business for $1.45 billion; and the acquisition of GNP for $350 million. The addition of Plumrose will further extend JBS’ reach into the global prepared meats space.

“Plumrose USA is a well-respected business with an outstanding professional team, a strong portfolio of branded, cooked and prepared foods, and first-class, well-invested assets in strategic geographic locations that complement our current business structure,” said Nogueira.

Meat in the U.S.

Meat and poultry represent the largest segment of all agricultural sector segments in the U.S., according to a report issued by Ken Research.

And despite a report issued by a World Health Organization group – the International Agency for Research on Cancer (IARC) – in 2015 that claims to link the consumption of processed meats to increased risks for certain cancers, U.S. consumption is on pace to continue to grow.

Ag groups and consumers alike appear to refute these findings. Stakeholders and industry groups representing the processed and red meat industry along with U.S. House Agriculture Committee Chairman Michael Conaway (R-Texas) rebutted the findings of the IARC report.

Dr. Dominik Alexander, an epidemiologist who conducted a large-scale meta-analysis published in the Journal of the American College of Nutrition stated, “The bottom line is the epidemiologic science on red meat consumption and cancer is best described as weak associations and an evidence base that has weakened over time. And most importantly, because red meat is consumed in the context of hundreds of other foods and is correlated with other behavioral factors, it is not valid to conclude red meat is an independent cause of cancer.”

This sentiment is seemingly shared by consumers, as the processed meat market in the U.S. is expected to grow at a compounded annual growth rate (CAGR) of 2.26 percent between 2016 and 2020, according to the report, Processed Meat Market in the U.S. 2016-2020 issued by Technavio.

Supplies and Synergies

JBS’ move to grow its presence in the U.S. market will not only enable the company to capitalize upon these consumption trends, but also will avail the company of increased animal supplies. The total number of cattle and calves in the U.S. herd increased 2 percent – climbing from 91.9 million head on January 1, 2016 to 93.6 million head on January 1, 2017, according to the U.S. Department of Agriculture (USDA). This increase marks the third consecutive year that the U.S. herd has grown in number.

Additionally, the deal is viewed as being highly complementary for both JBS and Plumrose, with expectations that it will provide annual synergies of $25 million.

“This is exciting news for Plumrose USA as JBS USA’s business is very complementary to ours and offers opportunities for us to grow and thrive,” said Dave Schanzer, CEO of Plumrose USA.

For Danish Crown, the deal allows the company to focus on what it calls its 4WD strategy.

“The focus of Danish Crown’s 4WD strategy is to lead our home markets in Northern Europe, further grow our position in Asia, and to expand our leading position in casings globally,” said Jais Valeur, Group CEO of Danish Crown. “We have therefore decided to sell Plumrose USA.”

-Lynda Kiernan

Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration please contact Ms. Kiernan at lkiernan@globalaginvesting.com.