April 10, 2018

Brazil’s Marfrig Global Foods has acquired 51 percent of Kansas City, Missouri-based National Beef for $969 million. The deal was conducted through Marfrig’s indirect subsidiary, NBM US Holdings.

When concluded, the deal will make Marfrig the second largest beef processor in the world with total sales of $13 billion.

Founded in 1992, National Beef processes and markets fresh beef, case-ready beef and pork, beef by-products, and wet-blue leather.  The company has operations in Liberal, Dodge City, and Kansas City, Kansas; Hummels Wharf, Pennsylvania; Moultrie, Georgia; and St. Joseph, Missouri. From its two slaughterhouses in Liberal and Dodge City, National Beef has a slaughter capacity of 12,000 head, or 13 percent of total U.S. capacity. Through these operations, the company posted sales of $7.3 billion in 2017.

New York-based holding company Leucadia National Corp. acquired National Beef in 2011  and holds a 79 percent stake in the company, however once the Marfrig deal is closed, Leucadia will become a minority shareholder with a 31 percent stake in the business. U.S. Premium Beef, a collection of 2,100 U.S. cattle producers, will hold another 15 percent stake, and various unnamed shareholders will hold the remaining 3 percent. Under the terms of the transaction, Leucadia and all other remaining shareholders have agreed to not sell their shares for a period of five years.

“National Beef is an outstanding company and we are excited to continue our partnership with Tim Klein and the rest of the National Beef team,” said Rich Handler, CEO of Leucadia, and Brian Friedman, President of Leucadia. “We are also pleased to welcome Marfrig as a partner in the company and believe the expanded partnership group will only enhance National Beef’s ability to serve its customers on a global basis.”

Strategy

Not only will this deal make Marfrig the second largest beef processor in the world, it will greatly enhance its position in the global market, while also improving its leverage ratio.

National Beef exports to 40 international markets, importantly including Japan and South Korea – two key importers that have stopped accepting Brazilian beef imports following an industry scandal in that country that left J&F Participações (J&F), the holding company of JBS, agreeing to pay more than $3 billion in fines under a leniency agreement between itself and the Brazilian Federal Prosecutor’s Office, after founders of JBS admitted to paying bribes to Brazilian politicians in exchange for preferential treatment and favors including access to cheaper credit, according to the Wall Street Journal.

“The acquisition of National Beef represents the realization of a unique opportunity,” said Martin Secco, CEO of Marfrig. “With the transaction, we will have operations in the world’s two largest beef markets, will gain access to extremely sophisticated consumer countries, and will be able to grow while maintaining rigorous financial discipline.”

The deal also gives Marfrig a place at the table in the U.S. – a major market that has banned the import of Brazilian beef.

“Brazil has faced barriers to sell beef into the U.S. and this is just one way to get exports to the U.S. If you can’t sell beef here, come in and buy a U.S. company,” Altin Kalo, a livestock analyst with Steiner Consulting Group told Reuters.

Once the deal is closed, Marfrig plans to consolidate National Beef’s total results – a move which will result in the reduction of Marfrig’s debt from 4.55 times its EBITDA to 3.35 times its EBITDA. It also has plans in the pipeline to divest Keystone Foods, a provider of poultry, fish, and beef products to food service, convenience, and retail outlets. This divestment is estimated to further improve Marfrig’s debt ratio to 2.5 times by the close of this year.

“The acquisition of National Beef reflects our sustainable growth strategy,” said Marcos Molina, chairman of Marfrig Global Foods. “From now on, we have become the Brazilian company of the sector with the best financial health, proved into the lowest rates of leverage.”

Current National Beef leadership, including president and CEO Tim Klein will remain in place at the helm of the company, while the structure of the board will shift to include nine members – five nominated by Marfrig, two by Leucadia, and two by the remaining shareholders.

“I am excited to welcome the Marfrig group as a partner in National Beef,” said Klein. “Their broad global food platform will further strengthen our efforts to build our brand in new and existing markets as the demand for high quality U.S. beef grows.”

-Lynda Kiernan