Tyson Foods will acquire Keystone Foods, a subsidiary of Brazil's Marfrig Global Foods, for $2.16 billion in cash, according to a company statement. Keystone is a major supplier of beef, chicken and fish products to McDonald's.
Included in the deal are six processing plants and an innovation center located in the U.S. It also includes eight plants and three innovation centers in China, South Korea, Malaysia, Thailand and Australia. Keystone has about 11,000 employees, generating $2.5 billion in revenue for the 12 months ending June 30. Approximately 65% of its revenue is from U.S. production.
Tyson had been in talks since late July to buy Keystone, Reuters said. Other offers for the company came from Cargill, George's, China's COFCO, Ltd. and an unidentified Japanese firm, according to Bloomberg. Tyson expects the deal to close in mid-fiscal 2019.
This development comes as no surprise to anyone who has been watching the situation. Marfrig had been looking to sell Keystone Foods, and a number of companies — including Tyson, Cargill and China's Fosun International — had expressed interest as of this past spring.
Acquiring Keystone makes sense for Tyson since chicken production is the company's area of expertise. And, by buying Keystone, Tyson gets a multinational operation that's a chicken nugget leader and a big foodservice supplier.
The Arkansas-based firm may also be able to leverage existing relationships to supply meat and poultry products to McDonald's and other restaurants and CPG companies. Keystone also makes beef patties, ready-to-cook chicken wings and fish filets. According to Tyson's statement, the company expects to generate annual synergies of $50 million by the third year of the acquisition.
In the statement from Tyson, President and CEO Tom Hayes explained why Keystone is such a desirable addition.
“This acquisition will expand our international presence and value-added production capabilities and help us deliver more value to our foodservice customers," he said. "Keystone provides a significant foundation for international growth with its in-country operations, sales and distribution network in high growth markets in the Asia Pacific region as well as exports to key markets in Europe, the Middle East and Africa.”
Farha Aslam, an equity analyst for Stephens, Inc., seemed to see the deal as a mixed bag, according to an Aug. 17 note to investors cited by Meatingplace.
"The transaction does offer Tyson significant synergy opportunities and a solid international business, the deal does increase the Company's exposure to McDonald's, a restaurant chain that offers suppliers steady business but at thin margins," Aslam wrote.
Brian Todd, president of The Food Institute, wrote in comments emailed to Food Dive that this continues Tyson's recent strategy.
“Marking its second large acquisition in as many years, Tyson’s purchase of Keystone continues a growth through acquisition strategy," he wrote. "Last year, the firm bought Advance Pierre. Tyson also purchased a 5% stake in Beyond Meat in 2016, and recently bought minority investments in ‘clean’ meat companies Memphis Meat and Future Meat Technologies this year, according to The Food Institute Merger and Acquisition database.”
Tyson has been focusing on protein products, as well as ready-to-eat and foodservice lines, so folding Keystone's chicken nugget and other products into its portfolio could give it a stable and lucrative path to additional growth. Like many large food companies, Tyson has been concerned about how ongoing trade disputes will impact its businesses and whether the company might lose its competitive advantages in critical export markets such as China, Canada and Mexico. This acquisition, with Keystone plants already located throughout the world, can help Tyson position itself going forward.
Hayes said earlier this year that the company is looking for M&A opportunities that can add more capacity in a growing category. Its 2017 purchase of AdvancePierre for $4.2 billion enhanced Tyson’s goal of expanding into branded and prepared foods that generate larger and more predictable profits than its often volatile meatpacking operations.
Tyson also acquired Original Philly Holdings, a producer of raw and fully-cooked Philly-style sandwich steak and cheesesteak appetizer products, and it bought into cell-cultured meat startup Memphis Meats. Most recently, the company bought Tecumseh Poultry, owner of the air-chilled Smart Chicken brand, for an undisclosed amount.
Marfrig appears to be refocusing on its beef operations in the U.S. and South America. It reportedly posted net losses for the past five years due to acquisitions of diversified protein companies that didn't work out. Proceeds from the Keystone sale will likely be used to fund its recently announced $969-million majority stake in National Beef Packing Co. and to pay down debt, Bloomberg noted.
When the ever-increasing American taste for animal-based protein is taken into account, such moves don't seem like big gambles. According to U.S. Department of Agriculture figures, total red meat and poultry consumption is expected to hit 220.4 pounds per person this year, which is up from 216.8 pounds in 2017.