Who wants to buy Swift?

GREELEY – Meat industry observers generally agree that, if Swift & Co. were to be purchased, it would more likely be by a rival meatpacker rather than an investment group such as the one that bought ConAgra Foods’ beef division in 2002 and put Swift in the panoply of the country’s biggest meat processors.

In addition to Swift, the nation’s largest meatpackers are Smithfield Foods in Smithfield, Va.; Tyson Foods Inc. in Springdale, Ark.; Cargill Inc. based in Minneapolis.; and National Beef Packing Co., owned by U.S. Premium Beef of Kansas City, Mo.

As a privately held company, Swift is not required to disclose financial data. However, the self-described world’s second-largest processor of fresh beef and pork claims more than $9 billion in annual sales. On the surface, Swift & Co. would appear to be a plum ripe for picking in an industry moving toward more consolidation and fewer players.

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But Swift has been suffering in recent years. In 2003, bans on importing American beef by several countries after a case of Mad Cow disease was discovered in Washington hurt the entire beef industry, and Swift was no exception. The bans, along with public worry about meat, resulted in flagging profits that have only recently begun to substantially improve.

“The implementation of Swift’s operational excellence initiatives and improved U.S. beef commodity market conditions combined to produce the best first quarter in Swift Beef since the enactment of export bans in December of 2003,´ said CEO Sam Rovit in the company’s first quarter financial report released in October 2006.

Swift’s bottom line kept improving in its second-quarter report released Jan. 4, which noted a 6.3 percent net sales increase in Swift Beef, a 15.9 percent net sales increase in Swift Australia and a 0.6 percent net sales increase in Swift Pork.

But just as Swift was seeing improvement in its financial picture, federal agents from the Immigration and Customs Enforcement division of the Department of Homeland Security raided six of its meat processing facilities, arresting nearly 1,300 workers for being in the country illegally or possessing stolen or fraudulent identification documents.

The raids shut down those facilities for only one day, and Swift was not charged or penalized for employing illegal immigrants. But the action resulted in the company losing about $30 million in lost production and rehiring efforts.

Who’s interested?

Of the big four U.S. meatpacking companies, Cattle Buyers Weekly analyst Steve Kay thinks National Beef – the nation’s fourth-largest beef processor – is the company that might be most interested in acquiring all or a portion of Swift’s assets.

Smithfield Foods expressed interest in buying Swift once before in 2005, but its offer was turned down. Kay said Tyson Foods and Cargill have also expressed interest in buying a portion of Swift’s assets in recent years.

Repeated calls to all four meatpackers for comment were not returned. An unidentified secretary for a company spokesman at Smithfield Foods told a reporter, “I will pass your request along but we do not comment on rumors.”

Analyst Kay said Swift Beef is particularly vulnerable to a sale. “Swift Beef has had negative numbers for the last three years,” he said. “Swift Beef remains a drag on the company, and I don’t think it’s going to get much better.”

If another meatpacker acquires Swift Beef through a sale or merger, Kay predicts that it will likely close both the corporate headquarters office and the processing plant.

“Nobody really likes the plant,” he said. “It’s 47 years old, and it’s not configured to fit the modern requirements of a beef processing plant going forward.”

While Swift CEO Sam Rovit has said all financial options are on the table – a sale, merger, refinancing or public equity offering – Kay strongly believes that Swift will be sold to some company or investment group.

“It’s going to be sold,” he said. “I say that because it’s actively in play and they will consummate a deal. They may decide they don’t like any of the offers and hold onto it a little longer.

“But I believe (the current owners) would really like to sell the company and move on.”