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Cablegate: Brazilian Company Becomes World's Largest Beef Producer

VZCZCXRO9427
RR RUEHRG
DE RUEHSO #0572/01 1801141
ZNR UUUUU ZZH
R 291141Z JUN 07
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 7180
INFO RUEHBR/AMEMBASSY BRASILIA 8281
RUCPDOC/USDOC WASHDC 2825
RUEHRC/USDA FAS WASHDC 0683
RUEHMN/AMEMBASSY MONTEVIDEO 2378
RUEHBU/AMEMBASSY BUENOS AIRES 2793
RUEHSG/AMEMBASSY SANTIAGO 2084
RUEHLP/AMEMBASSY LA PAZ 3398
RUEHCV/AMEMBASSY CARACAS 0520
RUEHRG/AMCONSUL RECIFE 3657
RUEHRI/AMCONSUL RIO DE JANEIRO 8183
RUEHAC/AMEMBASSY ASUNCION 3047
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 SAO PAULO 000572

SIPDIS

SIPDIS

DEPT FOR WHA/BSC, WHA/EPSC
STATE PASS TO USTR FOR SCRONIN
STATE PASS EXIMBANK
STATE PASS OPIC FOR MORONESE, RIVERA, MERVENNE
USDOC FOR 4332/ITA/MAC/OLAC
USDOC FOR 3134/USFCS/OIO
TREASURY FOR JHOEK
AID/W FOR LAC/AA

E.O. 12958: N/A
TAGS: EAGR EFIN ETRD EINV BEXP BR
SUBJECT: BRAZILIAN COMPANY BECOMES WORLD'S LARGEST BEEF PRODUCER
WITH PURCHASE OF U.S. COMPANY SWIFT

REF: SAO PAULO 18

-------
SUMMARY
-------

1. The Brazilian company JBS-Friboi, the largest producer and
exporter of beef in Latin America and the largest exporter of beef
in the world, purchased 100 percent of Colorado-based Swift &
Company for USD 225 million with the assumption of USD 1.16 billion
in debt, giving the deal a total value of about USD 1.4 billion.
The combined revenues of JBS-Friboi and Swift are approximately USD
11.5 billion last year. Swift is the third largest beef and pork
processor in the United States and the largest beef processor in
Australia. With this purchase, JBS-Friboi becomes the world's
largest beef producer, surpassing both Tyson Foods and Cargill.
This acquisition gives the Sao Paulo-based company new access to the
global market and the especially lucrative U.S. and Asian markets.
The deal, which garnered a lot of attention and commentary in the
Brazilian media, came as a surprise to many in the United States,
who expected Swift to be sold all or in part to U.S. meat companies.
End Summary.

------------------------------
BACKGROUND OF SWIFT FOOD & CO
------------------------------

2. According to U.S. and Brazilian media, Swift began to experience
increasing debt in late 2003 when the United States first reported
cases of mad cow disease and Japan temporarily banned imports of
American beef. The company incurred further losses when, as part of
an identity-theft investigation involving immigrants, U.S.
immigration agents raided the company's plants in 2006 and found a
large number of undocumented workers. These raids cost the company
between USD 45-50 million in lost earnings and expenses to recruit
and train new workers. Swift reported net sales of USD 2.09 billion
for its fiscal third quarter ending this past February 25, down 6.9
percent from net sales of USD 2.24 billion in the same period the
previous year. For the fiscal year ending May 28, 2006, the company
posted a loss of USD 129.55 million on sales of USD 9.35 billion.

----------------
PURCHASE DETAILS
----------------

3. JBS-Friboi purchased Swift for USD 225 million with the
assumption of USD 1.16 billion in debt, bringing the total
transaction to approximately USD 1.4 billion. The takeover creates
the world's largest beef producer in terms of animals slaughtered.
Together the two companies have the capacity to slaughter 47,100
cattle a day, surpassing Tyson's capacity of 37,100 and Cargill's of
36,000. Swift's pork unit is the most profitable and includes three
U.S. plants. As Friboi's strength is beef, the company intends to
analyze the performance of the pork business and then decide whether
to spin off or expand pork operations.

-----------------------
INTERNATIONAL EXPANSION
-----------------------

4. The purchase reflects JBS-Friboi's consistent expansion
strategy. The company began exporting fresh meat in 1997 and first
expanded internationally in 2005 with the purchase of Argentine meat
processor Swift Armour. While this is the largest purchase by
JBS-Friboi to date, it is also part of a series of acquisitions
intended to consolidate the company's global presence. According to
JBS-Friboi chief executive Joel Mendonca Batista, the purchase is
crucial for providing new "distribution channels in Japan, Korea,
and also in the United States." With this expansion, JBS-Friboi
gains increased access to the markets of the United States and
Australia. Together with Argentina and Brazil, these four countries

SAO PAULO 00000572 002 OF 002


represent 50% of world meat consumption and more than 80% of world
meat exports, making JBS-Friboi the new meat powerhouse in the world
market.

-------
COMMENT
-------

5. This transaction represents another example of Brazilian
companies increasing their investments outside Brazil as part of
their strategy to diversify markets and attempt to become global
players (reftel). End Comment.

6. This cable was cleared/coordinated with Embassy Brasilia.

MCMULLEN

© Scoop Media

 
 
 
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