Editor's note: This story has been updated with comments from the American Economic Liberties Project calling for the Federal Trade Commission and the Department of Justice to investigate the purchase of Sanderson Farms by Cargill and Continental Grain.
- Cargill and Continental Grain reached an agreement to buy Sanderson Farms for $203 per share in cash, representing a total equity value of $4.53 billion for the chicken producer.
- The two buyers plan to combine Sanderson Farms with Continental Grain subsidiary Wayne Farms and create a new privately held chicken company. The transaction is subject to regulatory approval, and is expected to close at the end of 2021 or beginning of 2022. Wayne Farms CEO Clint Rivers will lead the combined company.
- Sanderson, the nation's third-largest poultry producer, had reportedly been looking at options for the company for some time. The purchase price is at a more than 30% premium over Sanderson's stock on June 18, which was the last full trading day before speculation about the company's potential sale.
As consumer demand for protein continues to soar, Sanderson is striking while demand for its poultry offerings is high.
The Mississippi-based company has long been a distant player to Tyson Foods and Pilgrim's Pride, which is majority owned by Brazilian meat giant JBS. According to Watt Poultry USA data cited by The Wall Street Journal, combining Sanderson with smaller chicken processor Wayne will give the new entity about 15% of U.S. chicken production.
The increased scale will provide Sanderson, which processes more than 13.6 million chickens a week, with greater heft in competing with its larger competitors, working with retailers, sourcing feed and benefiting from Cargill and Continental's connections throughout the agricultural space.
Feed costs remain a huge challenge for meat and poultry companies. Sanderson said on its earnings call in May it expects feed costs will be 7.5 cents higher per pound of chicken processed this year. These high costs — plus an increase in construction material costs — prompted the company to delay a planned processing plant.
The deal comes as the meat and poultry industries grapple with a shortage of workers that coincides with the spike in demand. Foodservice outlets also are reopening and restaurants are fueling an insatiable interest for chicken products from companies like Sanderson. In its most recent quarter, Sanderson's net sales were up 34% compared to 2020.
Sanderson also is one of several chicken providers implicated in a sprawling U.S. Justice Department investigation into chicken price fixing.
Many restaurant chains, grocery stores, CPG companies and food distributors have also filed their own lawsuits against chicken suppliers over prices. Several of the providers involved in the investigation have reached settlement deals, but Sanderson Farms so far has not. This means there could eventually be massive damages for the company to pay — and a greater legal headache to unfold — that could be fought more easily by the new ownership structure benefiting from the financial power of Cargill and Continental.
Stock of Sanderson, which is run by the grandson of the company's founder, surged Monday to $195 a share in mid-morning trading, below the offering price of $203. The spread between the two values is likely the natural risk baked into the shares of an acquired company several months before a deal closes.
Part of that uncertainty could hinge on antitrust issues some have speculated could crop up. In June, J.P. Morgan analysts said a deal between Continental Grain and Sanderson Farms would draw government attention given the sizable market share they would control of the U.S. chicken market and issues that have risen over price fixing. The government may be reluctant to sign off on a deal that further consolidates power in the chicken space and removes another competitor as these hurdles still dog the industry.
In a statement, the American Economic Liberties Project called for the Federal Trade Commission and the Department of Justice to investigate the purchase of Sanderson. The organization, which touts its role as an advocate for corporate accountability legislation and aggressive enforcement of antitrust regulations, said the deal would be especially beneficial for Cargill by allowing it to absorb one of its few remaining industrial agriculture competitors.
"Monopoly power is already strangling the chicken business as it is. Another mega-merger that enriches executives at the expense of farmers, shoppers, and meatpacking workers is the last thing rural America needs right now," J.D. Scholten, a senior advisor with the American Economic Liberties Project, said in a statement. "The Federal Trade Commission and the Department of Justice must investigate and challenge any such merger — or pass up a chance to reverse the decades of federal antitrust neglect that have pushed America's farming communities to the brink of collapse."