Source: Rita Jane Gabbett, MEATINGPLACE, 12/30/14


With big players like Tyson Foods and Pilgrim’s Pride having stated their intention to acquire value-added, protein diversifying packaged meat assets, BB&T Capital Markets analyst Brett Hundley has identified five businesses he sees as potential takeover targets.

In a note to investors, he named Oscar Mayer, AdvancePierre, BEF Foods (Bob Evans), Smithfield Packaged Meats and Maple Leaf Foods as possible targets.

Oscar Mayer
Oscar Mayer, owned by Kraft Foods, offers a venerable cold cuts line, including a "Selects" offering that plays off the removal of artificial ingredients; it also produces bacon, hot dogs and its Lunchables line, the latter of which is believed to be over $700 million in annual sales. Hundley said some estimates put Oscar Mayer’s margins at 15 percent to 20 percent.  The company has also moved into adult protein snacking.

“Kraft certainly has cold chain sales into the back of the store, however we think that Oscar Mayer may prove more leverageable by a more integrated protein player,” he wrote.

AdvancePierre
Hundley sees AdvancePierre, owned by Oaktree since 2007, as a potentially attractive asset for both Pilgrim’s Pride and Tyson Foods. He estimated annual revenues at more than $1.5 billion and margins “in the low teens” from its largely (over 50 percent) foodservice production of burgers, cheese steaks, stuffed chicken and other prepared items.

“We think it could be more important for Pilgrim’s Pride to acquire this company, relative to Tyson Foods,” Hundley wrote.

BEF Foods
Given the recent appointment of four activist investors to the board, along with the subsequent ousting of Bob Evans’ CEO, the company could be one step closer to a breakup, Hundley predicted.

Within Bob Evans, the BEF Foods segment produces packaged meats/homestyle food products under the Bob Evans, Owens and Country Creek brands. Hundley estimated annual revenues near $370 million with margins around 9 percent to 10 percent.
“We think that a larger player could improve margins considerably. That said, we question brand strength,” Hundley wrote.

Smithfield Packaged Meats
Now owned by WH Group, Smithfield's packaged meats business is estimated to have annual revenues around $6.5 billion with roughly 8 percent margins. There are number of brands under this umbrella that could be sectioned off, including Farmland (over $1.3 billion in annual revenues), Smithfield (over $1 billion), Armour-Eckrich (over $930 million), John Morrell (over $400 million), Cook's (over 330 million), and Gwaltney (over $290 million), according to Hundley.

“We think that WH Group may be open to this, given stated desires to work down debt,” he wrote, noting most of these brands are produced in the Midwest, making them leverageable for Tyson Foods or Pilgrim’s Pride.

Maple Leaf
Toronto-based Maple Leaf has more than 25 facilities and has undergone a significant amount of change in recent years including consolidating both its pork packing and its ready-to-eat further processing businesses, as well as building a new further processing plant.

Maple Leaf reports about $3 billion in annual revenues and has set a goal of 10 percent margins in 2015.

Hundley concluded, however, “We question how much value Pilgrim’s Pride and Tyson Foods find in this asset, given relative inability to garner production synergy.”

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