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JBS TO BUY SMITHFIELD'S BEEF PROCESSING AND CATTLE FEEDING OPERATIONS
Source: Smithfield Foods news release

Smithfield Foods, Inc. (NYSE: SFD) announced today that it has signed a definitive agreement to sell Smithfield Beef Group, Inc. ("Smithfield Beef"), its beef processing and cattle feeding operation, to JBS S.A. (Bovespa: JBSS3), for $565.0 million in cash.

The sale to JBS will include 100 percent of Five Rivers Ranch Cattle Feeding LLC ("Five Rivers"), which is currently held by Smithfield Beef in a 50/50 joint venture with Continental Grain Company ("CGC," formerly ContiGroup Companies, Inc.). Smithfield Foods and CGC have agreed that, immediately before closing of the JBS transaction, Smithfield Beef will acquire from CGC the 50 percent of Five Rivers that it does not presently own in return for 2.167 million shares of Smithfield common stock.

The purchase prices for JBS's purchase of Smithfield Beef, and Smithfield Beef's purchase of the 50 percent interest in Five Rivers, are subject to customary adjustments, including adjustments for differences in working capital at closing from agreed-upon targets.

The transaction excludes substantially all live cattle inventories held by Smithfield Beef and Five Rivers as of the closing date, together with associated debt. Live cattle currently owned by Five Rivers will be transferred to a new 50/50 joint venture between Smithfield Foods and CGC, while live cattle currently owned by Smithfield Beef will be transferred to another subsidiary of Smithfield Foods. The excluded live cattle will be raised by JBS after closing for a negotiated fee and then sold at maturity at market-based prices. Proceeds from the sale of the excluded live cattle will be paid in cash to the Smithfield Foods/CGC joint venture or Smithfield Foods, as appropriate. Smithfield believes that most of the live cattle inventories will be sold within six months after closing with substantially all sold within 12 months after closing. The proceeds from the sale of Smithfield Beef's live cattle inventories, together with Smithfield's 50 percent interest in Five Rivers' cattle inventory, net of associated debt, are expected to be in excess of $200 million.

Smithfield Foods expects that the net proceeds of the transaction (consisting of the $565.0 million to be paid at closing, plus the net proceeds from the sale of the retained cattle inventory post-closing after payment of associated debt) will be used primarily for debt reduction.

Smithfield Beef processes approximately 1.5 billion pounds of fresh beef annually. Its processing capacity is 7,600 cattle per day. Five Rivers is the largest cattle feedlot operation in the U.S. with a one-time feeding capacity of 811,000 head of cattle.

"We see this acquisition as an opportunity to participate in a segment of the business and a region where we are not present today. The synergy created will help us increase our customer base and reduce overheads in a highly competitive industry," said Wesley Mendonca Batista, Chief Executive Officer of JBS USA.

"We are pleased that Smithfield Foods is able to benefit our shareholders through this transaction by using the ultimate net proceeds of approximately $750 million to reduce leverage and invest capital in higher return businesses," said C. Larry Pope, president and chief executive officer. "While outperforming the industry, our beef group has nevertheless been a relatively minor player, as we have been unable to grow through acquisition or justify building a new plant in this adverse environment. It makes sense to exit the beef business at this time," he said.

The transaction is expected to close as soon as possible subject to customary regulatory review and closing conditions.


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