Thursday, October 18, 2012

Steal of a deal for XL

JBS USA got a steal of a deal to buy XL Foods Inc. for $100 million, half in cash, half in JBS shares, beef-industry executives and academics have told Meatingplace magazine.

One said the assets are worth at least $200 million and possibly as much as $300 million.

“It’s flat-out like finding a diamond ring and it fits your hand,” the magazine quotes an un-named U.S. beef-processing company executive “It’s as big a coup as I’ve seen in a long time.”

The deal includes the XL plant at Brooks, Alta., which the Nilsson family bought from Tyson Foods in 2009 for $107 million, plants in Omaha, Neb., and Nampa, Idaho, that the Nilssons bought from JBS about six years ago for $34 million, and a beef feedlot near Brooks.

The deal brings JBS 45 per cent of the Canadian beef-slaughtering capacity. Cargill is even bigger.

Derrell Peel, an extension speclalist on livestock marketing at Oklahoma State University, said the deal also provides flexibility for JBS because it can choose to slaughter cattle at either Brooks or Greely, Colorado, and can export to other countries from either Canada or the U.S.

On the downside, the purchase comes when there’s excess slaughter capacity in the North American beef market.

“This is not a short-term decision. It comes down to financial strength. Diversifying globally is a real plus when it comes to capacity issues,” an industry analyst is quoted by Meatingplace.  “The bottom line is: economies of scale are a huge deal in this industry.”