Chicken processing. picsfive/ThinkstockPhotos

Tyson to buy Keystone Foods for $2.5 billion

The acquisition is Tyson’s largest since it bought sandwich maker AdvancePierre Foods Holdings Inc. in 2017.

by Gerson Freitas Jr. and Megan Durisin 

Tyson Foods Inc., the largest U.S. meat producer, agreed to buy chicken-nugget maker Keystone Foods LLC for about $2.5 billion, according to a person familiar with the matter. 

Brazil’s Marfrig Global Foods SA, which is selling Keystone, will retain a U.S. hamburger factory, said the person, who asked not to be identified because the transaction hasn’t been formally announced.

The price of the deal is less than the $3 billion initially expected after conditions in the U.S. chicken market deteriorated, the person said. Demand in the U.S. has softened and domestic supply has risen, Tyson said earlier this month. Springdale, Arkansas-based Tyson and Marfrig declined to comment on the deal, which was first reported by Reuters. 

Marfrig, which jumped during early trading in Sao Paulo, later erased the gains and fell as much as 10% to 6.17 reais ($1.57), the lowest intraday price since April 6. The difference in the expected and the reported prices for the deal may be weighing on the shares, said Omar Zeolla, an analyst at Oppenheimer & Co.

The acquisition is Tyson’s largest since it bought sandwich maker AdvancePierre Foods Holdings Inc. in 2017. Under Chief Executive Officer Tom Hayes, Tyson has been trying to expand its range of prepared-foods offerings. The Keystone deal comes at a time when U.S. producers are grappling with weakening meat prices amid higher supplies and import tariffs imposed by China and Mexico in retaliation against U.S. duties on metal shipments.

Seven States 

Keystone, which supplies nuggets to McDonald’s Corp., had revenue of $2.8 billion last year. It has operations in seven U.S. states as well as in South Korea, China, Malaysia, Thailand and Australia. While its American assets account for almost 70% of sales, the food-service company has experienced stronger growth from its Asian arm. As well as chicken nuggets, Keystone also makes beef patties, ready-to-cook chicken wings and fish filets.

Besides Tyson, Keystone attracted bids from Cargill Inc., China’s Cofco Ltd. and an unidentified Japanese firm, two people with direct knowledge of the matter said in June. George’s Inc. -- a family-owned chicken producer based in Springdale, Arkansas -- also presented a binding offer.

Marfrig will now focus exclusively on its beef operations in South America and the U.S., marking the latest shift in its strategy. The company, controlled by its founder, Marcos Molina dos Santos, had previously sought to diversify into pork, chicken and processed food through acquisitions, but the move never paid off, and Marfrig posted net losses for the past five years amid a debt glut.

In April, it surprised investors by buying a majority stake in Kansas City-based National Beef Packing Co. in a $969 million deal that turned it into the world’s second largest beef producer. The proceeds from Keystone sale will be used to fund the acquisition as well as to pay down debt.

--With assistance from Tatiana Freitas and Vinícius Andrade.

To contact the reporters on this story: Gerson Freitas Jr. in São Paulo at [email protected] ;Megan Durisin in Chicago at [email protected]

To contact the editor responsible for this story: Simon Casey at [email protected]

© 2018 Bloomberg L.P

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