Tyson Foods to buy Keystone Foods in $2.16-billion deal
Purchase aims to further shift company’s business toward higher-profit products
Tyson Foods Inc. agreed to acquire a top meat supplier to McDonald’s Corp. and other chains, in a bid to boost its sales to restaurants as rising supplies and tariffs squeeze U.S. meat companies.
Tyson said Monday it would pay $2.16 billion (U.S.) in cash for Keystone Foods, expanding the Springdale, Ark.-based company’s business selling meat to fast-food chains and adding processing plants to its network in the U.S. and Asia.
The purchase aims to further shift Tyson’s business toward higher-profit products, such as chicken nuggets and fish filets, and away from slabs of nonbranded, commodity meat that tend to be less profitable and prone to market swings.
“Particularly internationally, we see this as a tremendous platform to continue to grow,” Tyson Chief Executive Tom Hayes said on a conference call. Tyson shares rose 1.6% to $63.40 on Monday, and have fallen 22% year to date.
Tyson, the largest U.S. meat supplier by sales, and competitors such as Pilgrim’s Pride Corp. and Sanderson Farms Inc. are struggling as new pork and chicken plants lift U.S. meat production to a record. Analysts expect poultry and red meat in storage to hit a record this year at the same time that major importers such as Mexico and China have raised tariffs on U.S.-produced meat products, driving down prices.
Over the past four years, Tyson has spent billions of dollars on deals for supermarket standbys such as Hillshire Farms lunch meat and Jimmy Dean sausages, as well as upstarts like the organic brand Smart Chicken. Those acquisitions were geared toward lifting the company’s profit margins and insulating its sales from the type of commodity-market downdraft now vexing the U.S. meat sector. Still, Tyson last month lowered its profit forecast for the year, citing the effects of tariffs and “an oversupply of protein.”
Keystone’s business is weighted toward the U.S., where about two-thirds of its overall sales are generated, primarily supplying products such as chicken nuggets and fish filets to restaurants. In Asia, Keystone sells a wider range of meat products.
Supply deals with restaurant chains can be less profitable than distributing name-brand goods to grocery stores, but are generally very stable, according to analysts.
Mr. Hayes told investors that the deal would help reduce volatility in Tyson’s chicken business, and that Tyson could improve Keystone’s profit margin by cutting costs. Keystone can also provide Tyson a platform to make a fresh push into markets such as the Middle East, Africa and Europe, he said.
Tyson divested itself of many of its non-U.S. assets in recent years to focus on the U.S.
Some analysts have warned that another big deal could be risky for Tyson, depleting capital the company could spend buying back shares. Stewart Glendinning, Tyson’s chief financial officer, said the company has recently succeeded at making big acquisitions and still repurchasing shares.
The deal to combine two major meat suppliers to restaurants will face regulatory reviews in the U.S., China and elsewhere.
Mr. Hayes declined to say whether McDonald’s or other Keystone clients blessed the deal, but said that Tyson’s customers have backed the company’s overall strategy.
McDonald’s declined to comment.
Tyson plans to finance Keystone’s purchase from Marfrig Global Foods SA of Brazil with cash and new debt. For the year ended June 30, West Chester, Pa.-based Keystone generated annual sales of $2.5 billion and earnings before interest, taxes, depreciation and amortization of $211 million.
Marfrig, which reached a deal in 2010 to acquire Keystone, said earlier this year that it would sell the company. Marfrig this year became the world’s second-largest beef processor—after JBS SA of Brazil—with its purchase of a majority stake in National Beef Packing Co.