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CattleNetwork.com – Tuesday – October 21, 2008 – 10:37 p.m. CDT (By Chuck) Jolley: DOJ Files Suit To Stop Part Of JBS’s Takeover Bids In a confusing decision that left several unanswered questions about permissible size and competitiveness in a market that was already down to only a few major players, the DOJ said ‘no’ to number 4 and ‘yes’ to number 5. JBS will be allowed to go ahead with its plan to buy the Smithfield Beef Group but National Beef was put off limits because it would ‘lessen competition for fed cattle in the High Plains and Southwest regions.’
The Brazilian-based packer – the world’s largest - would also get Smithfield’s huge Five Rivers cattle feeding business in the bargain. With losses in the feeding business reportedly approaching $100 a head, that part of the deal might not be such a bargain, though. Look for JBS to try to unload Five Rivers or find some economies of scale that aren’t readily available to the rest of the industry.
The red flag for the DOJ was the potential size and market impact of a JBS acquisition of National Beef. It would become the largest U.S. beef packer, with an ability to slaughter more than one third of U.S. fed cattle packing capacity and give it annual sales of more than $14 billion. The Department contends the acquisition would substantially restructure the beef packing industry, eliminating one competitively significant packer – but not the other - and placing more than 80 percent of domestic fed cattle packing capacity in the hands of just three firms - JBS, Tyson Foods Inc., and Cargill Inc.
Permitting the Smithfield purchase, however, puts JBS in the same very exclusive club, a heavyweight in both the North American and worldwide marketplaces.
It also leaves open the possibility that they could come back at a later date and try to buy pieces and parts of a wounded National Beef.
Thomas Barnett, DOJ’s assistant attorney general for antitrust, explained the rationale behind the suit by saying, "You're going to have a situation where you're moving from five significant producers to just three," leading to lower prices for cattle producers and higher prices at retail. The Justice Department's suit was joined by the attorneys general of Colorado, Iowa, Kansas, Minnesota, Missouri, Montana, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Texas and Wyoming.
The Department’s decision to allow
JBS to acquire Smithfield Beef Group, the nation's fifth-largest beef packer,
will give the Brazilian packer plants in Tolleson, AZ; Green Bay, WI.;
Plainwell, MI.; and Souderton, PA., adding to the plants it already owns in
Cactus, TX; Grand Island, NE.; Greeley, CO. and Hyrum, UT. The DOJ suit is aimed at stopping the acquisition of National Beef’s plants in Liberal and Dodge City, KS and Brawley, CA. citing National's Brawley and Smithfield's Tolleson plants as the only two sizable bidders for fed cattle in the Southwest.
JBS could offer to divest one or both of those plants if the DOJ will vacate its suit against the National acquisition, a strong possibility since both JBS and National have said they will contest the decision and might feel the need to soften the market impact seen by the DOJ. It would still leave an anti-trust issue on the table, though, since both are direct competitors for fed cattle in the same regions.
A determined and well-funded JBS is not likely to easily concede the government’s case. A combative Wesley Batista, JBS USA’s President and CEO, said, “We disagree with the Department of Justice’s decision to try and block this transaction. This transaction is highly pro-competitive and will generate significant efficiencies and synergies that will benefit out cattle suppliers and our beef customers. We believe the government’s case is misplaced and we look forward to defending the matter in court.”
National Beef’s CEO, John Miller, released a statement refuting the DOJ charge that the buyout would result in unfair pricing practices saying, "This transaction will bring tremendous value to our customers and other stakeholders through cost savings."
Opponents to the mergers immediately praised the decision. R-CALF USA President Max Thornsberry said, "We are grateful that the Justice Department and State Attorneys General have considered our concerns and are taking meaningful action to protect U.S. cattle producers and consumers against the abusive market power that can result from industry concentration."
Taking a more measured stance, the NCBA’s Andy Groseta, the association's president and an Arizona rancher who could be directly affected by the acquisition said, "We will be making certain that the prices cattle producers receive for their animals do not decrease unfairly."
Senator Charles Grassley of Iowa issued this statement: “Thank goodness the Justice Department finally has recognized that there is too much concentration in agriculture, and is taking some action to protect consumers and ensure there is a level playing field for independent producers and family farmers. For some time I believed that antitrust enforcers were asleep at the switch, and today’s action couldn’t come too soon.”
Bottom line: The DOJ has only fired the first shot in what promises to be a long court battle that could end with a landmark Supreme Court decision defining the concept of ‘antitrust’ as well as the future of the cattle industry. http://www.cattlenetwork.com/Content.asp?ContentID=262104 © 2008 Vance Publishing All Rights Reserved. NOTE: In accordance with Title 17 U.S.C. section 107, any copyrighted material herein is distributed without profit or payment to those who have expressed a prior interest in receiving this information for non-profit research and educational purposes only. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml |
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