- Pilgrim's Pride is acquiring Tulip, a U.K.-based provider of meat products to the retail and foodservice sectors, from the Danish Crown Group. The deal, funded with cash on hand, is valued at approximately $354 million, Pilgrim's said in a release.
- Tulip is the largest pork producer in the U.K., with almost $1.1 billion in annual sales and more than 6,000 employees. It has developed an integrated supply chain emphasizing accountability and traceability, Pilgrim's said.
- Pilgrim's CEO Jayson Penn said in a statement that the acquisition will strengthen his company's European foods platform and position it as a "leading global prepared foods player." He said Tulip brings consumer-ready innovation capabilities, well-invested assets, established customer relationships and a strong leadership team.
This acquisition accomplishes a number of objectives for Pilgrim's, which is majority owned by Brazilian meat company JBS. Penn said it expands the company's geographic footprint, enhances its value-added portfolio and reduces volatility across its business with a more stable margin profile.
Tulip's 12 manufacturing operations in the U.K. are also part of the deal, which should give Pilgrim's a good base from which to expand operations. Tulip's current owner Danish Crown was founded in 1887 and is one of the world's largest pork exporters. It will continue to supply Danish pork to Tulip under a long-term supply contract, which is another asset for Pilgrim's.
Danish Crown CEO Jais Valeur said in the release that Pilgrim's is already strongly positioned within the U.K. chicken market and would like to strengthen its position within pork. He noted Danish Crown wanted to simplify its U.K. business and, with the supply agreement, "the transaction holds out interesting perspectives for both parties."
According to Seeking Alpha, the deal is viewed positively by Stephens who said it "will pay off in the intermediate to long term." The financial services firm noted Pilgrim's "has a solid track of generating synergies from acquisitions," even though there could be some short-term risks. The shares of Pilgrim's were up more than 90% this year through Aug. 28 due to strong poultry pricing and demand trends, Seeking Alpha reported.
This is encouraging since the company's revenue picture hasn't been too positive lately. Pilgrim's first-quarter earnings declined 0.8% from the same quarter a year earlier, and though U.S. sales were up 2.3% for the same period, they were down in Europe and Mexico.
Conditions in the U.S. poultry market have been relatively good as the category continues to grow. But some consumers are looking at alternative protein options out of concerns for health, sustainability and animal welfare. As a result, food and beverage manufacturers are engaging in foreign acquisitions as a way to diversify portfolios and expand their customer base.
This purchase does that for Pilgrim's while giving it a wider demographic reach from which to operate. A larger footprint could help the company if one region is dealing with a disease outbreak, financial turmoil or weather catastrophe as another area helps offset that. In addition, it gives Pilgrim's more exposure to pork in its portfolio, which could be useful when poultry is hit with wild swings in price volatility.
In 2017, Pilgrim's bought Moy Park, a poultry producer based in Northern Ireland. Competitor Tyson Foods has recently invested in Thai and European poultry operations from BRF, and frozen nugget and patty provider Keystone Foods. With its acquisition of Keystone last year, Tyson now owns processing plants and innovation centers in China, South Korea, Malaysia, Thailand and Australia.
As long as these M&A deals pan out, big food and beverage companies are likely to keep looking for investments abroad — particularly if they bolster supplies of needed commodities and attract new consumers with more disposable income to spend. And if these deals help keep production costs for feed, labor and logistics down and revenues trending up, there will be more of them going forward.