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Meat giant Tyson signals potential M&A slowdown after deals
[CHICAGO] America's largest meat processor has been on a buying spree, but momentum for further acquisitions may be slowing.
After buying chicken-nugget maker Keystone Foods for more than US$2 billion last year and announcing the purchase of some of Brazil's BRF SA's assets for US$340 million on Thursday, Tyson Foods Inc chief executive officer Noel White plans to be "very disciplined" about any future deals.
Tyson, based in Springdale, Arkansas, has been expanding into value-added products such as chicken nuggets and expanding abroad to combat lacklustre markets and disappointing sales at home. The company is now ready to tap bond markets to finance the recent acquisitions, Stewart Glendinning, the chief financial officer, said Thursday on a conference call with analysts.
"We will be very disciplined in what we would take a look at next," CEO Mr White said on the call. "It would have to deliver strong financial return, be in a geographic area that might be attractive. But we are fully committed to integrating what we have bought, get our financing in place and then take a very structured, disciplined approach on anything else."
After the buying spree, speculation emerged that the company may expand at home. Tyson has held talks to buy closely held US meat company Foster Farms for about US$2 billion, CNBC reported this week.
Mr White's comments may signal that "given the acquisitions announced today, it remains committed to maintaining an investment-grade credit rating", said Ken Shea, an analyst at Bloomberg Intelligence. "It will likely be careful to not make acquisitions that could breach that."
The company could also be trying to allay any possible investor concerns that it's "getting a little undisciplined with acquisitions, considering the deals announced today and the rumored, larger Foster deal," Mr Shea said.
Tyson's shares slid 1.3 per cent to US$60.12 Thursday in New York. The company reported first-quarter sales that missed estimates by analysts, and US stocks tumbled on China trade pessimism.
Tyson has shifted to focus more on value-added products to help navigate volatile commodity markets. A boom in US production has dragged down prices for pork and chicken, with little sign the trend will let up soon. Low sales for the meats dragged down sales in the first quarter.
"The primary focus is going to be in value-added foods and growing that sector," Mr White said.
On the outlook for more deals, CFO Mr Glendinning said on the call: "We never comment on any prospect of acquisitions. But clearly we want to go to the bond market in a clean way for our debt objectives."