Smithfield shares rise on reports of possible sale to JBS

Smithfield shares up on reports of deal with JBS

NEW YORK — Shares of Smithfield Foods Inc. soared more than 5 percent Tuesday on reports that the hog producer might be ripe for a takeover by Brazilian meat giant JBS.

THE SPARK: JBS may try to revive talks with the Smithfield, Va. pork producer, according to reports published by Brazilian publication Valor Economico. The company recently bought a majority stake in chicken producer Pilgrim’s Pride Corp. for $800 million as the company restructured. Smithfield said it would not comment on rumors. JBS did not a call eeking comment.

THE BIG PICTURE: With the economy still hurting, investors like to see large deals, which can signal growth in the economy. Smithfield’s total revenue last year was $11.2 billion. A buyout would provide cash and stability to Smithfield, which lost $101.4 million for the fiscal year. The company narrowed its loss from the prior year but is still struggling with supply and demand and volatile feed costs.

THE ANALYSIS: KeyBanc Capital Markets analyst Akshay Jagdale said if the deal were to be pursued it would have to clear antitrust regulations in the U.S. Smithfield controls 30 percent of the processing industry, and JBS’ pork unit in the U.S. has about a 10 percent share.

Jagdale also questioned whether JBS would be able to finance a deal after so many other acquisitions in recent years. One of those, Bertin SA was a big bite. It is one of Latin America’s largest producers and exporters of milk products, beef and leather.

JBS’ strategy for companies it takes over seems to be to help expand its distribution, not to add new production capacity, which is what a Smithfield buyout would be, he said.

But for the right price, Jagdale said any company is for sale.

SHARE ACTION: Shares rose 80 cents to $15.68 in midmorning trading Tuesday, even as the S&P 500 and Dow Jones Industrial dropped more than 2 percent.