Having broken talks with the Justice Department on the merger of their two companies, JBS-Swift & Co. and National Beef emphasized they are moving forward as strong independent companies.

JBS S.A. spokesman Chandler Keys told Meatingplace the company still has strong national and global platforms that position it for growth in beef, pork and lamb. The "silver lining" of the broken deal, he said, is it frees up some $970 million for JBS.

"The U.S. meat industry, from the consumers to the producers, should want healthy and strong processing and packing companies to provide food for our system, and JBS sits in that position quite comfortably," Keys said.

National Beef also is looking ahead with confidence. Steve Hunt, chief executive officer of U.S. Premium Beef, the majority owner of National Beef, told Meatingplace that while the merger presented several benefits, the company did not enter into it out of necessity. He noted that National Beef had a record profit of $125 million in 2008, and also is excited to take advantage of its liquidity position to build on its value-added programs.

"This was a merger of a strategic nature from both sides," Hunt said. "Our company has been looking to diversify geographically and otherwise, and JBS became one of the opportunities to do that. USPB was taking back stock and cash, so we were merging more than we were selling. We felt there were great synergies and opportunities on a much larger platform. Having said that, one of the reasons parties agreed to go their separate ways is we're both good independent operating companies."

The DOJ said it "welcomes" the decision. "Had the acquisition gone forward, it would have combined two of the top four U.S. beef packers resulting in lower prices paid to cattle suppliers and higher beef prices for consumers," the agency said in a statement.

"The decision to abandon the transaction will preserve competition in the purchase of cattle that has been critical to ensuring competitive prices to the nation's thousands of producers, ranchers and feedlots. It will also preserve competition in the sale of boxed beef to grocers, food service companies and ultimately American consumers. The Department remains vigilant in protecting competition in this industry with more than $50 billion in total commerce at stake."

The DOJ said it intends to terminate the pending litigation it filed to block the merger.

Excess capacity

Derrell Peel, an agriculture economist at Oklahoma State University, told Meatingplace the downside of the terminated merger is it will make a slower and more difficult process of shedding some of the excess capacity that has plagued the industry.

Peel said given current economic conditions and the fact that the U.S. cattle herd is at its smallest in 50-plus years, consolidation is inevitable; it's just a matter of how it is going to occur.

"A merger like this certainly scares some folks in terms of concentration," he said, "but it also essentially permits the combination of the stronger elements and perhaps pares away the parts that are weak."

Plans

Neither Hunt nor Keys would discuss in detail immediate strategic plans for their respective companies. Keys, however, disputed speculation that JBS would sell off Smithfield Beef Group assets if it could not land National Beef.

"That's not correct at all," Keys said. "If you look at the history of [the Batistas], they don't sell anything. What they do is buy distressed assets, then turn them around and make money. The Smithfield (JBS-Packerland) beef operations always make money. You don't get rid of profit center, particularly if you're liquid."

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