Tyson Foods Inc. said Wednesday it has a preliminary agreement to sell its beef packing operations in Brooks, Alberta, to Canadian beef processor XL Foods Inc.

The C$107 million sale will include the packing, feedyard and fertilizer assets of Lakeside Farm Industries Ltd and its subsidiary Lakeside Packers. The transaction includes C$57 million, to be paid at closing. The remaining C$50 million, plus interest, will be paid over a five-year period following closing, which the companies expect to occur by the end of September.

Tyson would retain the finished product inventory, accounts receivables and accounts payables of the Lakeside operations as of the closing date. The net value is currently estimated to be between C$50 million and C$100 million. The final value of these excluded items will be determined at the time of closing, the company said.

"Lakeside no longer fits the long-term strategy of our company, as our current international strategy is focused primarily in Asia, Mexico and South America," Tyson President and CEO Dick Bond said in a statement.

What a 'drag'

Widening losses at Lakeside contributed to Tyson's $11 million loss in the beef segment during its second fiscal quarter. While the company took a $17 million charge to restructure its Emporia beef plant and an $8 million charge related to packaging equipment impairment during the quarter, it also called its Canadian operations a "major detractor" to the overall segment.

"Without hesitation, we believe the sale of [Tyson's] Canadian beef operation is a positive, as the Canadian beef business not only has been a material drag to the company's beef operations, but likely would have continued to generate losses for the foreseeable future given the shortage of cattle and labor in Canada," BMO Capital Markets analyst Kenneth Zaslow wrote in a note to investors on Thursday.

Investment banking firm Stephens Inc. told investors it raised its fiscal 2009 earnings estimate by 5 cents to $1.10, reflecting Tyson's lack of need to absorb losses from the facility.

Lakeside currently employs 2,300 people and has the capacity to slaughter and process 4,700 head of cattle per day. The commodity boxed beef it produces is primarily sold to customers in Canada and the United States.

XL, a part of Canadian cattle feeding and marketing company Nilsson Bros. Group, said it plans to continue operating the Lakeside facility after the sale is completed.

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