Report: Tyson Foods may buy Foster Farms for $2B
Tyson Foods has reportedly been in talks to buy Foster Farms for approximately $2 billion, according to unnamed sources who spoke with CNBC. Neither Tyson nor Foster Farms would specifically comment on the situation, CNBC said.
A Foster Farms spokesperson told CNBC, "While inquiries and rumors have come and gone for decades, Foster Farms has thrived as a family-owned company for 80 years. We are fully confident in our future success as a stand-alone company."
The sources also said the two companies haven't reached agreement on a price, and therefore the talks may come to nothing. And, even if they do agree, a deal could be "at least several weeks away," CNBC reported. Tyson shares fell slightly when the news came out, but then bounced back.
Should this acquisition occur, it could mean Tyson is refocusing on the U.S. poultry and frozen food market after purchasing Keystone Foods last year for $2.16 billion. Keystone, a former subsidiary of Brazil's Marfrig Global Foods, is a major supplier of beef, chicken and fish products to McDonald's.
According to CNBC, the Keystone purchase gave the company an important foothold in Asian protein markets, so if Tyson bought family-owned Foster Farms, it would amount to "a mild change in course" and reflect a similar approach as its $7.7-billion acquisition of Hillshire Brands. That deal brought Jimmy Dean sausages and Ball Park hot dogs under the Tyson brand umbrella. At the time of the Hillshire purchase, former Tyson CEO Tom Hayes said Keystone would expand the company's international presence and deliver more value to its foodservice customers.
Tyson has been on an acquisition spree the past few years. In 2017, the company bought AdvancePierre in a $4.2-billion deal that enhanced Tyson’s goal of expanding into branded and prepared foods to generate larger and more predictable profits than its often volatile meatpacking operations.
Tyson also acquired Original Philly Holdings in 2017, a producer of Philly-style sandwich steak and cheesesteak appetizer products. It also bought into cell-cultured meat startup Memphis Meats. And last year, the company bought Tecumseh Poultry, an organic producer and owner of the air-chilled Smart Chicken brand.
Last January, Hayes noted Tyson was continuing to look for new acquisitions if they could add "more capacity in a growing category," but he added recent valuations had been high enough to encourage caution. A bargain-hunting approach would underscore recent rumors about Tyson and Foster Farms not reaching agreement on price, but it's hard to tell barring further developments.
Tyson has a new CEO after Hayes stepped down last fall for personal reasons. The company's current CEO and president, Noel White, had served as Tyson's beef, pork and international group president. It's possible White may have strong opinions about where Tyson's M&A efforts should be directed and is only interested in acquiring a U.S. poultry producer such as Foster Farms if the price is right.
CNBC reported White said during a November earnings call that 90% of global protein demand is likely to occur outside the U.S., and his priority was to expand the company's prepared foods, value-added products and international market presence.
Foster Farms, a family-owned poultry producer based in California, may be very interested in being acquired. The company has innovated with Bold Bites, a line of seasoned chicken snacks, and put QR codes on its fresh chicken packages for consumers to get more information and recipes. It also invested $30 million to expand and upgrade a Louisiana poultry processing plant. Such changes could enhance its appeal and market valuation.
While the privately owned company doesn't report financial data, Forbes ranked it No. 197 on its 2018 list of 229 of the largest private companies, with $2.4 billion in 2017 revenue. Foster Farms also has a relatively new CEO and president in Laura Flanagan, who took over in 2016 from Ron Foster, grandson of the company's founders. Foster stepped down in 2014 following a salmonella outbreak linked to Foster Farms products, although he was credited for boosting business by 70% during the 11 years he headed the company.
Tyson has had its own challenges lately, and it's not clear the company would want more chicken and turkey production capacity right now. Tyson's chicken sales have been hurting as consumers turn toward beef and pork as the latter's prices drop due to oversupply from flagging exports. The company's operating income from chicken fell 34% during the fourth quarter of last year, so this doesn't seem like a good time to expand its share in that market.
It's possible other major U.S. poultry producers such as Koch Foods, Perdue Farms, Pilgrim's Pride or Sanderson Farms will take a look at Foster Farms since the brand was founded in 1939 and presumably has a built-in consumer base. A foreign-based company could also be interested in gaining access to the U.S. poultry market. However, unless global tariff disputes are resolved, potential buyers might be smart to take a wait-and-see attitude before making more animal-based protein acquisitions.