How To Make Money In The Cattle Business

Brazil’s Marfrig Locks Up 82% Interest in National Beef; Two Brazilian Companies Now Processing The Majority Of Beef In America

How do you make money – real money – in the cattle business?  Well, if you’re a Madison Avenue financial services company you buy controlling interest in the fourth largest U.S. meat packing plant for a cool $868 million and, over the course of eight years, sell your interest to a Brazilian-based, global food conglomerate and rake in billions of dollars in profit.

Here’s how it all unfolded.

In 2011, Jefferies Financial Group (formerly known as Leucadia National Corporation) bought 79% of Kansas City-based National Beef for $868 million.  Six years later, in 2017, Jefferies announced it was selling 48% of its interest to Sao Paulo, Brazil-based Marfrig Global Foods.  In the same buying spree, Marfrig picked up an additional 3% of National Beef shares from smaller shareholders, bringing its total interest to 51%.  In December 2019, Jefferies unloaded its remaining 31% of National Beef – again to Marfrig – for $970 million. The sale included all of National’s business segments, including beef processing plants in Dodge City and Liberal, KS, consumer-ready operations in Hummers Wharf, PA and Moultrie, GA as well as a leather tannery in St. Joseph, MO.  

 The Jefferies Group was delighted with the sale, saying in a press release last December, “Having initially invested $868 million to acquire 79% of National Beef eight years ago, we persevered during National Beef’s severe downturn and were rewarded with strong cash distributions from operations, and now the sale of our remaining interest.  We will have realized an aggregate of almost $3 billion in cash, or 3.3 times our original investment in National Beef.” 

Whew, that’s a mountain of dough.

National Beef has been a little like a phoenix, rising from the ash heap of bankruptcy and financial stress on several occasions.  Founded in 1992, National was part of Farmland Industries, a farmer-owned cooperative that went bankrupt in 2002.  In 2003, Kansas City-based U.S. Premium Beef bought a majority stake in National for $232 million.  By 2009, National needed a cash infusion and announced an initial public offering (IPO) aimed at raising $300 million, but the company abruptly pulled the plug on the IPO.  Eighteen months later, Leucadia (which became the Jefferies Group) stepped in and purchased 48% of the company.   

By March 2019, with Marfrig in control, National Beef made public its intent to acquire Iowa Premium, LLC, a beef packing company in Tama, IA.  The Iowa Premium plant processes primarily Angus fed cattle purchased primarily in Iowa and surrounding states and specializes in marketing USDA Choice and Prime grade beef.  The addition of Iowa Premium to National Beef’s business lines added another 1,100 head per day harvest capacity to National Beef’s previous capacity of 12,000 head per day, accounting for about 14% of the total U.S. cattle slaughtering capacity.  The Iowa Premium deal was completed in June 2019 without a whimper from the U.S. Department of Justice’s antitrust division.  

Marfrig’s acquisition of 79% in National Beef makes the company the world’s second largest beef producer, right behind JBS SA.  While we’re on the subject of JBS, we should note that in 2008 JBS announced its own intention to purchase National Beef, but the deal was blocked when the Obama Administration’s Department of Justice filed a civil antitrust lawsuit.  

According to its website, Marfrig has holdings in Brazil, Argentina, Uruguay, Chile and the U.S. and an estimated consolidated sales north of $13 billion in U.S. dollars.  The company operates in South America, the U.S., Europe and Asia where it markets beef, pork, lamb, poultry, frozen vegetables, canned meats, fish, ready meals and pasta.  The company has 31 production units in Brazil, Uruguay and Chile, four distribution centers and the capacity to process up to 4.7 million head of cattle.  Beef processing is the company’s original core business and Marfrig readily admits the National Beef deal consolidates the company’s strong position in the beef industry.   

Brazilian-owned companies (JBS and Marfrig) now control two of the four meatpacking companies processing around 74% of all beef in the U.S., according to the North American Meat Institute.  In 2019, the top four beef packers will process about three-quarters of the nation’s beef in 27 facilities across the country.  Marfrig’s CEO Martin 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.”  

In case you’re wondering who owns the remaining 18% of National Beef, according to the Kansas City Business Journal those companies are:  Kansas City-based U.S. Premium Beef owns 15%, South Dakota-based Beef Products Inc. holds 2.4% and National Beef CEO Tim Klein owns 0.89% of those remaining shares.  

©Leesa Zalesky for The Sortin’ Pen Blog

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