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CHICAGO/SAO PAULO (Reuters) - Brazil's JBS SA (JBSS3.SA) said on Wednesday that it would take over bankrupt U.S. chicken company Pilgrim's Pride Corp PGPDQ.PK and Brazilian rival Bertin, in deals that would make it the world's largest meat company with $30 billion in annual revenue.
JBS, a huge beef producer with some pork operations, will buy a 64 percent stake in Pilgrim's Pride for $800 million in cash, pitting it against current No. 1 meat company Tyson Foods (TSN.N) in the chicken business in addition to its pork and beef divisions.
"It's a good deal for both parties," Morningstar analyst Ann Gilpin said. "JBS is able to get a lot of scale in an industry where it doesn't have any presence for pennies on the dollar."
It also provides JBS with a share of the U.S. chicken export market.
"In terms of benefits, it is a global story rather than a U.S. story," said Jim Robb, economist with the Livestock Marketing Information Center. "They well understand the international focus. When (about) 20 percent (of U.S. chicken) is exported, they see some potential in that poultry complex from a global demand perspective."
JBS, which already is the world's largest beef processor, will take a controlling stake in Brazil's second-largest beef producer Bertin. The all-stock transaction has an estimated value of 5.2 million reais (US$2.9 billion), based on Tuesday's JBS share price.
The deals are the latest in a string of acquisitions by JBS, which started as a butcher shop in 1953. In the United States, it bought beef and pork company Swift & Co. in 2007 and a year later the U.S. cattle feedlots and beef plants from Smithfield Foods SFD.N.
JBS on Wednesday said it will postpone the $2 billion IPO it announced in July because it has to change the details on the filing due to the recent developments.
JBS expects U.S. and Brazilian regulators to approve the deals.
"In Brazil, we don't see concentration existing since both companies export 50 percent of their own production and the local market is spread out," said Joesley Mendonca Batista, JBS chief executive.
While the Obama administration may closely scrutinize the Pilgrim's Pride deal, analysts expect it will be approved since there would be no change in the number of U.S. chicken companies or their respective market shares.
"It will be an interesting test of the administration's view on consolidation," said Michael Swanson, a Wells Fargo agricultural economist. "I would not think it is going to be a slam dunk that it gets approved."
In the United States, the Brazilian company is already the third-largest beef producer, after Tyson (TSN.N) and Cargill CARG.UL, and the third-largest pork producer, after Smithfield and Tyson.
JBS expects the deal to close in December when Pilgrim's Pride would emerge from Chapter 11 protection.
Pilgrim's Pride Chief Executive Don Jackson told Reuters that most of Pilgrim's executive management will remain once the deal is approved and that company operations should largely be unchanged.
Pilgrim's Pride grew from a feed store opened 1946 to the largest U.S. chicken company before high feed and fuel costs and large debt forced it into bankruptcy in December 2008. While in bankruptcy it sold and closed plants and reduced production
Under the plan, all creditors will be paid in full and existing stockholders will get the same number of new common shares representing 36 percent of the reorganized company. The plan also calls for $1.75 billion to cover senior secured financing.
Lazard acted as sole investment banker to Pilgrim's Pride in connection with its financial restructuring and deal with JBS. Also, JPMorgan and the Brazilian unit of Santander advised JBS on the deal with Bertin, while Rothschild and Rabo Securities USA advised JBS on the Pilgrim's Pride takeover.
Additional reporting by Dhanya Skariachan in Bangalore, Guillermo Parra-Bernal and Elzio Barreto in Brazil; Editing by Lisa Von Ahn, Reese Ewing, Leslie Gevirtz and Bernard Orr