Smithfield to Buy Bankrupt Pork Producer Farmland Foods

Jul. 16--Smithfield Foods said Tuesday it agreed to buy the nation's sixth-largest, but bankrupt, pork producer, further consolidating its position as the world's largest producer and processor of hogs. Smithfield bid $363.5 million in cash for the Farmland Foods subsidiary of Kansas City-based Farmland Industries, which sought Chapter 11 bankruptcy court protection from its creditors in May 2002. The court must approve the purchase, which will close in the next 75 days if no other companies attempt to outbid Smithfield. The acquisition of Farmland will give Smithfield a larger geographic footprint. That is crucial to getting Smithfield products into national grocery store chains, which prefer that suppliers also have a national reach, said Christine McCracken, an analyst with Midwest Research in Los Angeles. "It strengthens their processing network in the Midwest, where they haven't had much of a presence," McCracken said of Smithfield. "It also gives them a very strong brand that's well-known in the Midwest." Smithfield profits have plummeted over the last year as the company was hit with a hog glut that drove the prices of the animals down. Smithfield says the acquisition of Farmland, which has annual sales of $1.8 billion, will help cushion that downturn by immediately adding to corporate earnings. If the companies are combined, Smithfield will control about 27 percent of the pork market, so federal antitrust regulators are expected to examine the deal. Smithfield said the market share level is "substantially lower than some companies' shares in the poultry and beef industries." Smithfield CEO Joseph Luter III said he sees "no antitrust issues that should delay the closing" because the size of this transaction is comparable to similar ones approved by regulators. Under the agreement, Smithfield would operate Farmland plants at their current production levels, retain all of Farmland's 6,100 employees and honor Farmland contracts with hog producers and unions. Rather than fold Farmland assets under Smithfield brand names, Smithfield will allow Farmland to retain its current management team and brand name and operate as a stand-alone business still based in Kansas City. Like Smithfield, Farmland's hog production business is integrated with pork processing and processed meats businesses that sell bacon, ham, fresh pork, hot dogs, sausage and deli meat under the Farmland Foods name. Besides pork, Farmland, which was an agricultural cooperative, also sells fertilizer, petroleum, grain and animal feed. Farmland also has a beef processing business that Smithfield was interested in buying, but Farmland sold it to U.S. Premium Beef for $232 million last month. Farmland CEO Bob Terry said both of the committees representing Farmland creditors in the bankruptcy proceedings support the sale. The bankruptcy judge must set a timetable for other bidders to make an offer. SMITHFIELD ACQUISITIONS Smithfield Foods has been gradually consolidating the hog business and its meat processing capability. Name Location Year acquired Yearly sales Carolina Turkeys Mt. Olive, N.C. 2000 $336 million Gorges/Quik-to-Fix Dallas, Texas 2001 $140 million Moyer Packing Souderton, Pa. 2001 $600 million Packerland Packing Green Bay, Wis.2001 $1.4 billion Pinnacle Foods Pottstown, Pa.2001 $30 million RMH Foods Morton, Ill. 2001 $8 million Smithfield Cos. Smithfield 2001 $20 million Farmland Foods Kansas City, Mo.2003 $1.8 billion ----- To see more of the Daily Press, or to subscribe to the newspaper, go to http://www.dailypress.com (c) 2003, Daily Press, Newport News, Va. Distributed by Knight Ridder/Tribune Business News.