Thursday, October 18, 2012

JBS will run XL Foods

JBS U.S.A. is taking over management of the XL Foods Inc. beef-packing plant at Brooks, Alta., and has an option to buy the business for $100 million, half in cash, half in JBS shares.

The Nilsson family has thrown in the towel after weeks of tense relations with the Canadian Food Inspection Agency and the largest recall in Canadian history, amounting to well over one million tonnes of beef distributed from coast to coast via Canada’s largest supermarket chains, via six U.S. 
supermarket chains and further processors who market in more than 40 states and 20 other nations.

The challenge is getting rid of E. coli 0157:H7 that has been responsible for all of the recall and eventual closure of the plant on Sept. 26, and cleaning up the plant, equipment, production protocols, lab testing and related record-keeping and analyses and management systems.

The union representing about 2,200 workers said the Nilsson family and its managers are not up to the challenge, but believes JBS can handle the situation.

JBS includes some of the largest meat businesses in the United States such as Swift and Pilgrim’s Pride. It is a Brazilian company that has become the largest beef-packer in the world, despite teetering on the brink of bankruptcy last year under a debt of $6.9 billion.

The Brazilian government stepped in with loans in return for almost doubling its stake from 17 to 30 per cent of the company’s shares. JBS was started by José Batista Sobrinho when he launched a one-man packing business in 1953.

He has his six children continue to own part of the company that now has packing plants in a number of countries and is the largest meat business in Brazil.

JBS plans to get the XL plant running again, possibly as early as next week, and after 60 days it could exercise its option to buy the plant.

The deal also includes some other Nilsson family assets, such as a beef feedlot near the packing plant and auction markets. The deal does not include company debts and liabilities.

The Nilsson family bought the packing plant in 2008 from Tyson Foods. It paid $107 million, $50 million in cash and the rest to be paid over five years, including interest.

There were fears that Tyson would simply close the plant. Kevin Grier of the George Morris Centre commented at the time that “the bottom line was that Tyson was going to get out, and at least cattlemen can be assured that the operation is in good hands.”

If JBS does buy XL Foods, Canada will be left with two dominant and foreign-owned beef packers. The biggest is Cargill, which owns the nation's biggest plant near Calgary and Better Beef of Guelph, which is the biggest plant in the Eastern half of the country.