THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Saturday, October 7, 1995 TAG: 9510070243
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY LON WAGNER, STAFF WRITER
LENGTH: Medium: 61 lines
Smithfield Foods Inc. plans to pay $58 million for a Midwestern pork processing competitor, an acquisition that would double the company's size, it announced Friday.
Smithfield signed a letter of intent with Chiquita Brands International Inc. to buy its subsidiary, John Morrell & Co., for $25 million in cash and $33 million in Smithfield stock. Morrell's 1994 sales of $1.4 billion were only slightly outdone by the $1.5 billion in sales Smithfield posted in fiscal year 1995.
Perhaps more significantly, the move gives Smithfield a greater presence in the Midwest. Morrell has plants in Sioux Falls, S.D.; Sioux City, Iowa; Great Bend, Kan.; Cincinnati and Chicago.
``We're starting to push west anyway,'' said Smithfield Vice President Aaron Trub. ``It just seems like a great fit to us, and really makes us a national company.''
Smithfield has yet to perform ``due diligence'' - the checking Morrell's financial statements and facilities - but Trub said Morrell's $58 million price tag may appear low simply because Chiquita wanted out of the meat-processing business. The Cincinnati company wants to focus on the business for which it is known worldwide - fruits, including its high-profile brand of bananas.
Morrell sells its meats in several brands, including Dinner Bell, Rath Black Hawk, Tobin's First, Peyton's and Rodeo.
Even though Smithfield has not looked at every corner of Morrell's operations, it knows the company intimately. Smithfield President John O. Nielson retired as president of Morrell in 1989. Smithfield Senior Vice President Thomas Davis is a former CEO of Morrell.
``We know a lot about the company, let's put it that way,'' Trub said. ``Most of the time when you buy a company, you don't know them. We have two people here who have operated John Morrell.''
Smithfield's takeover of Morrell comes at a difficult time for the hog industry. Hog prices have been high, cutting into profits on processed pork products. But the purchase follows a historical pattern by Smithfield to expand its grasp during downtimes in the industry, said George Shipp, an analyst with the securities firm Scott & Stringfellow in Norfolk.
Smithfield bought Gwaltney in 1982 when the industry was struggling, and it took over Patrick Cudahy and Esskay in the mid-80s when things were tough, Shipp pointed out. But he said integrating John Morrell into Smithfield will be difficult, since its slaughtering facilities are old and it is ``not a healthy buy-it-and-let-it-go operation.''
The purchase, though, would boost Smithfield's slaughtering capacity from 40,000 hogs a day to 70,000. That puts Smithfield in a league with industry leader IBP Inc., Trub said.
``Clearly, this is a big announcement in the history of Smithfield Foods,'' Shipp said. ``It's the biggest deal they've ever done.''
Wall Street liked the deal too: Smithfield stock closed Friday up $4.25 at $25.75. by CNB