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Arkansas Democrat-Gazette – Sunday – October 4, 2009 – (front page of Business Section) (quotes R-CALF USA CEO Bill Bullard) Buyout plan called market hogCattlemen’s group out to block Pilgrim’s, JBS mergerLITTLE ROCK — Pilgrim’s Pride Corp.’s recently filed bankruptcy reorganization plan is a recipe to cook up a protein-market bully that would drive live cattle prices down for suppliers and consumer costs up for meat, an industry official says. Texas-based Pilgrim’s Pride filed for bankruptcy Dec. 1 with the Northern District Texas Bankruptcy Court. The reorganization plan’s catalyst is an agreement reached with JBS SA and announced Sept. 16 that sells a majority share of the reorganized company to the Brazilian beef giant. JBS SA will assume some debt and pay Pilgrim’s Pride $800 million cash for 64 percent of the new stock. Current Pilgrim’s Pride stockholders will get up to 36 percent of their canceled stock replaced by new stock, according to terms of the proposal. The total value of the transaction is estimated at $2.8 billion. If finalized, it will create a company that produces beef, pork and chicken and will challenge Springdale-based Tyson Foods Inc. as the world’s largest meat company. Pilgrim’s Pride operates Arkansas processing plants at Batesville and De Queen and has idled two plants, in Clinton and El Dorado. It employs about 1,979 people in the state, according to the company. The bankruptcy court is not the only hurdle for the smooth emergence of the new mega-meatpacker. Antitrust regulators will review the proposed merger with an eye toward market share and supply-and-price control. According to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, both parties of the merger must file a notification-and-report form with the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice. Once the document is filed, a 30-day waiting period allows time for those agencies to research the proposal and request more information before deciding if it will challenge the merger. If either agency perceives possible anti-competitive consequences, they can solicit more background information by calling for a second filing, according to the Department of Justice Web site. Both JBS and Pilgrim’s Pride said when the merger was announced that they do not anticipate any problems receiving regulatory approval because JBS does not have a presence in the U.S. chicken industry. In an e-mailed statement Tuesday, Pilgrim’s Pride spokesman Ray Atkinson referred all questions about the regulatory requirements to the Department of Justice. A spokesman for the Justice Department said she was unable to comment on any notices currently being considered. At least one group has already asked the Justice Department to block the merger to preserve a competitive market for independent U.S. beef producers, even though the merger adds a poultry producer to the JBS group. R-CALF USA, the Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America, represents thousands of U.S. cattle producers on domestic and international trade and marketing issues. R-CALF USA, a national, nonprofit organization, is dedicated to ensuring the continued profitability and viability of the U.S. cattle industry, the organization’s Web site states. The organization previously challenged a proposed JBS SA merger with National Beef Packing Co. in 2008. R-CALF claimed the merger would put JBS, with its estimated 25 percent of the beef processing capacity in the country, in almost complete control of the country’s beef market. The Department of Justice filed suit to halt the JBS/National merger, and the companies withdrew from the transaction. R-CALF USA now claims that a similar dominance of the beef market by JBS can happen even if it buys a poultry company. The group’s chief executive officer, Bill Bullard, said Thursday that the demand for cattle is influenced by the supply and price of competing proteins like pork and poultry. Consumers shift their buying patterns based on the price of one protein product versus others, Bullard said. When the price of chicken goes down, beef and pork sales suffer as a direct result, he said. “If JBS controls all three markets, it could artificially manipulate all markets and enjoy three years of the results before the beef industry could respond,” Bullard said, referring to the longer time required for cattle to mature to slaughter size. Roger McEowen, director of Iowa State University’s Center for Agricultural Law and Taxation, said Friday that the protein industry has seen its markets change over time toward more consolidation and fewer companies competing for animals and customers. “There has been more concentration in the industries and each is more interdependent than in the past,” Mc-Eowen said. “With all those changes, it may be appropriate to take a look at considering the wider market.” Tyson Foods expanded its beef operations in September 2001 when it bought South Dakota-based IBP Inc. for $3.2 billion plus assumption of $1.5 billion in debt. Marketing officials for protein providers predicted at the time that other companies would copy Tyson’s example of buying across industry markets and creating mega-companies. “Right now, Tyson Foods Inc. is the only one in the country that has all three markets in its operations. JBS is competing for second place. At that level of market share, it would give them the ability to manipulate all protein prices,” Bullard said. Investors have been keeping an eye on Pilgrim’s Pride stock since the shares were moved to over-the-counter trading when the company filed for bankruptcy. Shares have traded as low as 14 cents and as high as $7.90 in the past year. On Friday, shares were trading at $6.40, 3.03 percent lower than Thursday’s close. http://www2.arkansasonline.com/news/2009/oct/04/buyout-plan-called-market-hog-20091004/
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