When news came out last June that Sanderson Farms was exploring a sale, the CEO of Wayne Farms wasted little time getting on the phone with his bosses to discuss whether they could make a bid to acquire the poultry giant.
They quickly agreed to make a move for their larger competitor. Sanderson had been on the radar as a possible acquisition target by Wayne and its parent agricultural-investment firm Continental Grain for a while because the two poultry companies are "very complementary to one another," said Clint Rivers, Wayne Farms' president and CEO.
"This is an opportunity that doesn't come along very often," said Rivers. "We wanted to grow [Wayne] as a business for a long time. And over the years have had many conversations about how we can do that."
Cargill and Continental Grain finally struck a deal in August to acquire Sanderson for $4.53 billion. The two buyers plan to combine Sanderson with the Continental Grain subsidiary to create a new privately held company with more than 25,000 employees and the ability to process more than 143 million pounds of ready-to-cook chicken each week, according to data provided by Watt Poultry.
The deal is expected to close in late December or early 2022 once it receives regulatory approval from the Federal Trade Commission. Sanderson shareholders have already signed off on the transaction.
The combination of Wayne and Sanderson, which will be led by Rivers, brings together two companies with different customer bases that could benefit from each other's strengths. Sanderson has a huge presence in retail stores such as H-E-B, Walmart and Albertsons with its trays of fresh chicken. Wayne is largely focused on foodservice and restaurants including Chick-fil-A and Jack in the Box.
The new company is already looking for ways it could expand its portfolio.
For example, Rivers said executives have discussed the possibility of selling chicken raised without antibiotics in stores by tapping into Wayne's expertise in the area. Sanderson had remained steadfast in its use of antibiotics for its more than 70 years in business — a stark contrast with other poultry suppliers who have reduced or eliminated the practice amid growing concern by consumers over what goes into the food they eat.
For Cargill, which has been in discussions with Wayne for years on ways they could work together, the transaction fills a "miss in their portfolio" when it comes to a U.S. presence in chicken, Rivers said.
Mississippi-based Sanderson has long been a distant player to Tyson Foods and Pilgrim's Pride, which is majority owned by Brazilian meat giant JBS. Even after the merger, the new poultry company will remain the third-largest processor with about 15% share of U.S. chicken production, compared to 20% for Tyson and 16% for Pilgrim's Pride, according to Watt Poultry data shared by The Wall Street Journal.
Rivers said chicken demand is expected to remain elevated for the foreseeable future, giving Sanderson and Wayne "plenty of opportunities" to grow and removing any need to move into other categories. He said neither chicken processor has entered the plant-based space so far, and that it's "probably doubtful that we would get involved with it in the future." The new company also does not plan to expand into other meats such as beef and pork.
Rivers is unsurprisingly upbeat about the prospects of the new company.
Several restaurant chains have put in place "really aggressive growth plans" in 2022 and he is optimistic that Sanderson and Wayne will be able to supply them with more chicken. And as the U.S. economy reopens following COVID-19, consumption of poultry outside the home will likely rebound.
The new company also will benefit from the synergies extracted from the two businesses, including the adoption of best practices to save money and increase production. Together, these factors will trickle down to family farmers who will face more demand for their chickens. Many of its 20 fresh processing facilities could eventually contract with new producers in order to obtain enough supply of chickens, Rivers said.
Still, Sanderson and Wayne are being affected by many of the same problems facing other companies throughout the U.S. when it comes to higher input costs tied to inflation and a tight labor market.
Rivers said Wayne and Sanderson are turning to automation in some of their plants to blunt the staffing challenges and increase efficiency. They also are making sure pay and benefits are competitive to hire and retain workers. Sanderson last month increased pay rates for its hourly employees, the third consecutive year the company has boosted wages.
"Labor is pretty tight out there so I don't see there being any decrease in workers in the facilities" following the merger, Rivers said. "I would imagine there's openings available today to increase the staffing and locations."