Department of Justice seeks to halt JBS, National Beef deal

by Keith Nunes
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WASHINGTON — A civil antitrust lawsuit was filed Oct. 20 by the U.S. Department of Justice (D.O.J.) in U.S. District Court in Chicago to block the proposed acquisition by JBS S.A., currently the third-largest U.S. beef slaughterer and processor, of National Beef Packing Company L.L.C., the fourth-largest U.S. beef processor.

Brazil-based JBS is also in the process of acquiring Smithfield Beef Group Inc. from Smithfield Foods Inc., but the D.O.J. is not challenging that acquisition. JBS also bought Colorado-based Swift Foods Co. in 2007.

National operates two beef packing plants in Liberal and Dodge City, Kas., and one plant in Brawley, Calif. National’s annual beef sales are approximately $5 billion.

"We are disappointed that the D.O.J. does not recognize that this transaction is pro-competitive, and we plan to vigorously contest the D.O.J.’s attempt to block it," said Steve Hunt, chief executive officer of U.S. Premium Beef L.L.C. The U.S.P.B. is majority owner of National Beef Packing Co.

In explaining its lawsuit, the department chargedthe proposed JBS/National Beef Packing deal would combine two of the top four U.S. beef packers resulting in lower prices paid to cattle suppliers and higher beef prices for consumers. The Attorneys General of Colorado, Iowa, Kansas, Minnesota, Missouri, Montana, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Texas and Wyoming are joining the D.O.J.’s lawsuit.

"The combination of JBS and National will likely lead to grocers, food service companies and ultimately American consumers paying higher prices for beef," said Thomas O. Barnett, assistant attorney general in charge of the department’s antitrust division. "It will also lessen the competition among packers in the purchase of cattle that has been critical to ensuring competitive prices to the nation’s thousands of producers, ranchers and feedlots."

JBS’s acquisition of National substantially would restructure the beef packing industry, eliminating a competitively significant packer and placing more than 80% of domestic fed cattle packing capacity in the hands of three companies: JBS, Tyson Foods Inc. and Cargill, the D.O.J. said.

Lawyers for the D.O.J. concluded the acquisition would decrease competition among packers in producing and selling U.S.D.A.-graded boxed beef nationwide. It further concluded the proposed acquisition would lessen competition among packers for the purchase of fed cattle in the High Plains, centered in Colorado, western Iowa, Kansas, Nebraska, Oklahoma and Texas, and the Southwest.

JBS S.A. said it intends to contest the lawsuit plus immediately complete the purchase of Smithfield Beef Group for approximately $565 million in cash.

"We disagree with the Department of Justice’s decision to try and block this transaction," said Wesley Batista, president and c.e.o. of JBS USA. "This transaction is highly pro-competitive and will generate significant efficiencies and synergies that will benefit our cattle suppliers and our beef customers. We believe the government’s case is misplaced and we look forward to defending this matter in court."

JBS announced its acquisition of National Beef on March 5 for a total value of approximately $970 million. Under the terms of the purchase agreement, JBS intended to acquire all of the outstanding membership interests of National Beef. JBS will pay the members of National Beef total proceeds of approximately $465 million cash and $95 million in JBS common stock if the deal is allowed to proceed.

Andy Groseta, president of the National Cattlemen’s Beef Association, a group whose members raise and sell fed cattle to beef packers, said his members "appreciate the Department of Justice’s attention to the balance of competition within the beef industry.

"As JBS has increased its ownership in the packing and cattle feeding industries, N.C.B.A. has supported D.O.J.’s efforts to monitor, evaluate, and — if necessary — act upon these acquisitions. We encourage the process of due diligence and will be closely monitoring this case and the impacts on the beef industry. In particular, we will be making certain that the prices cattle producers receive for their animals do not decrease unfairly."

This article can also be found in the digital edition of Food Business News, October 28, 2008, starting on Page 1. Click here to search that archive.

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