Cargill, Continental Grain Discussing Terms to Close Sanderson Farms Acquisition

The Justice Department is discussing with Cargill Inc. and Continental Grain Co. potential concessions that could clear the way for the companies to acquire poultry processor Sanderson Farms Inc., according to people familiar with the matter.

The discussions with the government involve how farmers and plant workers are paid, the people said. Cargill, an agribusiness giant with meat, grain and food ingredients businesses, and Continental, an agricultural investment firm, agreed in August 2021 to acquire Sanderson for $4.5 billion.

One possible concession under discussion is that farmers who would raise chickens for the combined company would no longer be paid through the so-called tournament system, a payment system in which chicken companies measure farmers' performance against one another to determine how much they make, the people said. The tournament system is used by many large U.S. chicken companies to pay their growers.

The details of an agreement between the companies and the Justice Department could change, and the deal could fall apart.

The discussions come as the Biden administration, lawmakers and regulators have ramped up antitrust scrutiny on the U.S. meat and poultry industries, in which a handful of big companies supply the bulk of the beef, chicken and pork eaten by U.S. consumers.

Seeking changes to a combined company's business would be a departure from how the Justice Department has said it would approach mergers. Assistant Attorney General Jonathan Kanter has said he disfavors "complex settlements" that involve behavioral or structural changes to a company's business. In most cases, he has said, the Justice Department would simply seek to block a deal it sees as a threat to competition.

Cargill's and Continental's proposed deal for Sanderson would combine the third-largest U.S. chicken company with Georgia-based Wayne Farms LLC, a poultry company owned by Continental. It would form a new competitor representing roughly 15% of U.S. chicken production.

Under terms of the proposed deal, Continental and Cargill will evenly share ownership of Sanderson. Clint Rivers, chief executive of Wayne Farms, would lead the combined business.

In December, the Justice Department made an additional request for information from the companies involved, according to a regulatory filing.

Sanderson said in a regulatory filing in June that it no longer anticipated the deal to go through in the first half of this year but still expected it to be completed.

The White House has accused the biggest U.S. meat companies of using their market power to increase prices for restaurants and supermarkets while underpaying farmers and plant workers. Earlier this month, five chicken company officials were acquitted following the DOJ's third attempt to charge them with conspiring to fix prices, a setback to the department's antitrust efforts in the sector.

The Justice Department separately opened a civil probe into human-resources practices at chicken companies earlier this year.

In May, the Agriculture Department proposed new rules requiring poultry companies to be more transparent about how farmers are paid through the tournament system. The proposed rules require poultry companies to give more information to farmers about the feed and the birds supplied by companies and to provide contracts guaranteeing a certain number of chickens a year.

Industry trade groups such as the National Chicken Council have pushed back. "The performance-based structure of how chicken farmers are compensated is literally the definition of competition," the group said in May after the USDA released its rules proposal.

A shift away from the tournament model by one of the largest chicken companies could give rivals a competitive advantage or prompt a broader shift away from the model in the industry, poultry industry officials said.

If completed, the sale of Sanderson would come during boom times for the often cyclical chicken industry. Restaurant and grocery store demand has been hot for chicken products from Sanderson, Pilgrim's Pride Corp. and Tyson Foods Inc., while boneless skinless chicken breast prices have tripled since the start of 2021, according to Agriculture Department data. Meanwhile, consumers are expected to start trading down from pricer beef options to chicken as fears of a recession loom over spending habits.

Mississippi-based Sanderson reported a $321 million profit for the quarter ended April 30, helped by rising prices, compared with $97 million in the like period a year ago. The company got its start in 1947 as a farm-supply store. Joe Sanderson, the founder's grandson, has been the company's chief executive since 1989 and chairman since 1998.

Wayne Farms was founded in 1895 as a feed-milling company and later expanded into poultry. Continental bought the company in 1981.

Par: Patrick Thomas et Dave Michaels (18/07/2022)

Source: Dow Jones & Company, Inc via Foodmarket Newsletter (Urner Barry)

Image: Site Internet Cargill