Marfrig Global Foods, one of the world’s largest animal protein producers, announced April 9 that it has reached an agreement to acquire 51% of the membership interests in National Beef Packing Co. LLC, the fourth-largest beef processor in the U.S. Marfrig has agreed to pay $969 million for the equity interest and, once the transaction is concluded, will become the world’s second-largest beef processor, with consolidated sales of 43 billion in reals ($13 billion).
Founded in 1992, National Beef reported sales of $7.3 billion in 2017 and, since 2011, has been controlled by Leucadia National Corp., which currently holds a 79% interest. National Beef has a slaughter capacity of 12,000 head of cattle per day and is headquartered in Kansas City, Mo. It has two slaughterhouses located in Dodge City and Liberal, Kan., and accounts for approximately 13% of total U.S. cattle slaughter capacity. It is also one of the most profitable beef companies in the U.S.
Once the transaction closes, Leucadia will transfer control to Marfrig and will remain a minority shareholder in National Beef, with a 31% interest. U.S. Premium Beef, an association of American beef producers, will hold a 15% stake, and other shareholders will hold the remaining 3%.
Leucadia and the other investors have agreed not to sell their shares in National Beef for at least five years.
The transaction imputes an enterprise value to National Beef of $2.3 billion, including debt, which results in a last 12 months enterprise value/earnings before interest, taxes, depreciation and amortization (EBITDA) multiple of 4.4 times.
With the acquisition of National Beef, Marfrig said it achieves two key objectives outlined in its strategic plan. First, it consolidates its strong position in the beef industry, which is Marfrig’s original core business. A leader in the U.S. beef industry, National Beef exports to 40 countries, including Japan, a market currently closed to beef exports from Brazil. In 2017, Marfrig reported adjusted EBITDA of 1.7 billion reals ($516 billion). With National Beef, its pro forma EBITDA will increase to 3.4 billion reals ($1.0 billion).
“The acquisition of National Beef represents the realization of a unique opportunity,” Marfrig chief executive officer Martín Secco said. “With the transaction, we will have operations in the world’s two largest beef markets, will gain access to extremely sophisticated consumer countries and will be able to grow while maintaining rigorous financial discipline.”
Marfrig said the second key objective the transaction achieves is improving the company's leverage ratio. Upon closing, Marfrig will consolidate 100% of the results of National Beef. Last year, Marfrig’s total debt corresponded to 4.55 times its EBITDA, but with the acquisition, this ratio decreases to 3.35 times. The transaction will be financed by a loan from Rabobank.
Marfrig also noted that it has additional efforts to deleverage underway, including the decision to divest Keystone Foods, a leading supplier of high-quality, value-added food products to the world’s leading foodservice, retail and convenience and industrial brands. This sale, together with the National Beef transaction, should help Marfrig achieve its goal of reaching a leverage ratio of 2.5 times by the end of 2018, the company said.
"The acquisition of National Beef reflects our sustainable growth strategy," said Marcos Molina, chairman of the board of directors of Marfrig Global Foods. "From now on, we have become the Brazilian company in the sector with the best financial health, proved by the lowest rates of leverage."
Key executives of National Beef, including CEO Tim Klein, will continue to manage and remain at the company. The National Beef board of managers will consist of nine members, five of whom will be nominated by Marfrig, two by Leucadia and two by the other minority members.
“We are pleased to remain a significant shareholder in National Beef and to partner with Marfrig and the company’s management team in its continued development,” Leucadia CEO Rich Handler and Leucadia president Brian Friedman said.