Opposition to planned JBS-National Beef merger grows

Coming off a record third quarter, JBS S.A. remains determined to fight a lawsuit filed by the U.S. Department of Justice and 17 state attorneys general to block its intended merger with Kansas-based National Beef.

Coming off a record third quarter, JBS S.A. remains determined to fight a lawsuit filed by the U.S. Department of Justice and 17 state attorneys general to block its intended merger with Kansas-based National Beef.

If approved by a U.S. District Court judge in Illinois, the merger would make Sao Paulo, Brazil-based JBS - already the world's largest beef processor - the biggest beef processor in the United States as well.

"JBS's proposed acquisition of National, its third major acquisition since 2007, would complete a fundamental restructuring of the United States beef packing industry," the Justice Department lawsuit filed Oct. 20 states. "As a result, cattle producers, ranchers and feedlots likely will receive lower prices for their cattle. Similarly, grocers, food service companies and ultimately United States consumers likely will pay higher prices for USDA-graded beef."

The lawsuit contends that would be a violation of the Clayton Act, the federal anti-trust law.

JBS officials have said little about the proposed acquisition of National Beef, other than to state their determination to prevail in court.

"We disagree with the Department of Justice's decision to try and block this decision, Wesley Batista, JBS USA president and CEO, said in a statement Oct. 20. "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."

Tamara Smid, spokeswoman for the Greeley-based JBS USA division of JBS S.A., would say no more about the company's plans to fight the lawsuit. "The press release that went out Oct. 20 is the last statement we have on the subject of National Beef at this time," she told the Business Report.

Colorado is one of 17 states lined up against the proposed merger. Colorado Attorney General John Suthers said the merger would be bad for the state's cattle industry and consumers.

"This merger has the potential to significantly increase the price of beef for Colorado families and to alter the important role that cattle production plays in Colorado," Suthers said. "This industry is too vital to Colorado's economy for the state to allow this anti-competitive conglomeration to take place."

Moving quickly

JBS S.A. has moved quickly within the American beef market since it purchased Swift & Co. - the nation's third-largest beef processor - for $1.4 billion in July 2007.

In March 2008, JBS announced it intended to acquire National Beef and Smithfield Beef Group, the nation's fourth- and fifth-largest beef processors respectively. The DOJ did not oppose the Smithfield acquisition, which included Loveland-based Five Rivers Ranch Cattle Feeding, the nation's biggest feedlot operation. That acquisition was completed Oct. 23.

But the proposed merger with National would give JBS about 35 percent of U.S. beef-processing capacity, moving it ahead of its main rivals Tyson Foods Inc. with an estimated 25-to-30-percent share and Cargill Inc., with an estimated 20-to-25-percent share, and make JBS the biggest processor in America in less than two years.

On Nov. 3, JBS S.A. released its third-quarter financial statement touting "the best quarterly consolidated results in the history of the company" with net revenue for JBS USA - which includes JBS Australia and accounts for 43 percent of the company's total revenue - of $2.755 billion in U.S. dollars.

R-CALF USA, the Ranchers-Cattlemen Action Legal Fund of the United Stockgrowers of America, has been leading the charge against JBS's proposed merger with National, calling it an anti-competitive move that would have "widespread negative impacts on the U.S. cattle industry."

"(The beef industry) is already too concentrated," said R-CALF Director Bill Bullard. "This merger (including Smithfield) will reduce the number of buyers from five to three, or 88 percent of the steer-and-heifer slaughter in the United States. Fewer buyers means less competition and less opportunities for cattle producers to get a good price."

Bullard said he takes strong issue with JBS's statement that the merger would be "highly pro-competitive" for cattle producers.

"I think it makes the company, JBS, more competitive in the global market," he said. "From our perspective, we view it as just the opposite, as it reduces the competition for the sale of our live cattle."

Foreign concern

Bullard also said American beef producers are leery of seeing a foreign-based company controlling so much of the nation's beef industry.

"That certainly causes us concern," he said. "The U.S. is the biggest beef-producing and beef-consuming country in the world, and it is troublesome to have the market controlled by a foreign competitor - the largest beef exporter in the world."

While R-CALF and its members are taking a strong stance against the National Beef merger, the Colorado Cattlemen's Association is taking a much more nuanced position.

Terry Fankhauser, the association's spokesman, said the organization has not taken a formal position on the merger and is instead watching the DOJ lawsuit as it moves through the court.

"We support the process and will support the outcome of the process," he said.

Fankhauser said his group is more worried about a potential loss of packing plants as a result of the proposed merger.

"We know that fewer plants has a negative impact on the industry," he said, citing shipping costs that go up without a nearby packing plant. "At the end of the day, our concern lies with fewer packing plants in the business."

Fankhauser said he's glad to have JBS as a player in the U.S. beef market. "One thing about JBS that we certainly support is their excitement to be in the business and hope that they can work out their situation with the Department of Justice," he said.

But Fankhauser did not offer an opinion as to whether the merger with National would result in lower prices for Colorado's cattle producers.

"I think that's the magic question the Justice Department has to attempt to answer," he said. "I think that's really the crux of it."