This is a subscriber-only article
Months of speculation ended this week when a buyer was finally revealed for Moy Park.
The sale came about after the world’s largest meat company, Brazil-based JBS was embroiled in several scandals which prompted it to offload assets to raise funds. JBS bought Moy Park only two years ago from another Brazilian-based meat company, Marfrig.
In a deal valued at £1bn, Pilgrim’s Pride, the US-listed poultry processor, fought off other suitors including China’s New Hope Group. But don’t be fooled, this is effectively an intercompany transaction, considering that JBS already owns nearly 80% of Pilgrim’s Pride itself. Therefore, it will still effectively own 80% of Moy Park through this company.
To appease investors, Pilgrim’s said the deal was approved by a special committee of its board made up of independent directors.
The deal values Moy Park at approximately £790m (€875m), which works out at around £1bn (€1.1bn) once Moy Park’s net debt is included. This implies a multiple of around seven times’ earnings. Pilgrim’s will finance the deal with cash-existing credit facilities and a £562m subordinated seller financing note from JBS.
What the deal means
As the second-largest chicken producer in the world, Pilgrim’s supplies one out of every five chickens in the US. It has the capacity to process more than 34m birds per week, producing over 4.5m tonnes of live chicken annually.
It employs 42,000 people. Pilgrim’s had sales of $7.9bn and profits (EBITDA) of $899m in 2016, leaving a margin of 11%. Operating profit was $713m last year.
Before this deal, net debt to EBITDA was a low 0.99 times so it had plenty of capacity for the deal.
This deal extends Pilgrim’s footprint (currently across the US and Central America) into new markets. It will provide Pilgrim’s with a platform to grow in Europe, including access to the attractive UK market.
It also advances its strategy to diversify its portfolio to become more global while reducing volatility across its business. It should also bring an improved and more stable margin to the chicken business.
Moy Park up close
Moy Park, with sales of £1.4bn, EBITDA of £132m and margins of 9% in 2016, processes more than 5.7m birds per week and has 13 processing plants located in the UK, Ireland, France and the Netherlands.
Moy Park processes more than 5.7m birds per week.
It supplies the major food retailers and restaurant chains across the UK and continental Europe. It generates 75% of its revenues in the UK and Ireland, with 25% coming from continental Europe. Processing approximately 30% of UK production, prepared chicken makes up half its revenue.
An integrated supply chain with top-class production facilities along with direct relationships with more than 800 farmers brings huge value to Pilgrim’s. It also has a track record of delivering strong profit growth.
Successful history
Pilgrim’s has a history of successfully integrating businesses and realising synergy opportunities.
Pilgrim’s insists that it can cut costs by $50m (£38m) a year at Moy Park.
This would boost targeted earnings by a third. In the two years it owned the group, JBS has already taken out $30m (£23m) of costs. With such drive to enhance performance, the question arises, is it sustainable to continue to drive out costs in the longer term?
Pilgrim’s mainly grew by acquisition in the past but was hit by record-high corn prices, an oversupply of chicken and financial constraints in 2008, forcing the company to file for bankruptcy. Following a year of restructuring, it emerged stronger and more competitive. It was at this time that JBS acquired a 64% stake in Pilgrim’s.
Headquarters
Pilgrim’s has committed that Moy Park will remain headquartered in Craigavon, Northern Ireland.
It also stated that the Moy Park management team, led by Janet McCollum, will continue to lead the business, and the rest of the Moy Park employee base will remain in place. Moy Park will become a business unit within Pilgrim’s.
Read more
Goodman at 80: the rise of an empire
SHARING OPTIONS: