News Update

News Update
October 20, 2008

DOJ aims to block JBS-Swift’s purchase of National Beef

The U.S. Department of Justice (DOJ) filed a civil antitrust lawsuit Monday in U.S. District Court in Chicago to block JBS-Swift & Co.’s proposed acquisition of National Beef Packing Co., contending the deal would cause financial hardship on consumers and producers and harm industry competition.

The Attorneys General of Colorado, Iowa, Kansas, Minnesota, Missouri, Montana, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Texas and Wyoming are joining in the lawsuit.

The DOJ concluded that combining JBS-Swift and National Beef, the third- and fourth-largest U.S. beef packers, respectively, would result in lower prices paid to cattle suppliers and higher beef prices for consumers. In court documents, the department deal also would eliminate a “competitively significant” packer and place more than 80% of domestic cattle slaughter capacity in the hands of three companies: JBS, Tyson Foods Inc. and Cargill Inc., the department said.

“The combination of JBS and National will likely lead to grocers, foodservice companies and ultimately American consumers paying higher prices for beef,” Thomas Barnett, assistant attorney general in charge of the the DOJ’s Antitrust Division, said in a statement. “It will also lessen the competition among packers in the purchase of cattle that has been critical to ensuring competitive prices to the nation’s thousands of producers, ranchers and feedlots.”

JBS announced in early March it had reached agreements to purchase Kansas City, Mo.-based National Beef ($465 million), Smithfield Beef Group ($565 million) and Australia’s Tasman Group ($150 million).

A DOJ spokesman said the department is not challenging JBS’s proposed purchase of Smithfield Beef Group, the nation’s fifth-largest beef packer, or the Five Rivers cattle feeding operation.

National Beef vows to fight DOJ lawsuit

National Beef Packing Co. and its majority owner U.S. Premium Beef LLC expressed disappointment following the DOJ announcement Monday that it is suing to block the company’s $550 million merger with buyer JBS-Swift & Co.

“We are disappointed that the DOJ does not recognize that this transaction is pro-competitive and we plan to vigorously contest the DOJ’s attempt to block it,” USPB CEO Steve Hunt said in a statement.

JBS-Swift officials did not respond to requests for comment before press time.

Quantity vs. quality

Derrell Peel, a livestock marketing specialist at Oklahoma State University, told Meatingplace.com the DOJ’s concern regarding the regional concentration that would result from the proximity of Swift and National plants in the High Plains and the proximity of National and Smithfield Beef Group plants in the Southwest is understandable.

However, Peel questioned the DOJ’s concerns regarding the overall reduction in the number of firms bidding for fed cattle that would result from the deal, saying he’s not so sure that competition in the beef processing industry should be defined by the quantity of companies rather than the quality of operations.

Dealing with the industry’s issue of having excess slaughter capacity and inefficiencies that threaten profitability, for example, might be easier and take place faster with fewer players in the field. “This may prolong the agony,” he said.