March 5, 2008 / 6:40 PM / in 11 years

UPDATE 2-JBS, the new US beef giant, expects deals to pass

(Adds details, attorney comment, updates share prices 4-9, 18)

By Bob Burgdorfer

CHICAGO, March 5 (Reuters) - A day after shocking the U.S. meat industry with purchases of two big beef companies, Brazilian meat company JBS SA (JBSS3.SA) said on Wednesday it expected U.S. authorities to approve the deals without requiring it to divest assets.

“We are confident we will be successful. We are not thinking about divesting,” JBS President Joesley Batista said in a conference call with analysts and journalists.

JBS on Tuesday announced a $1.27 billion deal to buy National Beef Packing Co and the beef unit of Smithfield Foods Inc, both in the United States, and the Australian beef company Tasman Group.

Batista did not specify when the deals would be completed. If they are approved, Sao Paulo-based JBS will become the largest beef producer in the United States and the world, with about a 32 percent U.S. market share and 10 percent of the world beef market, industry sources said.

“That will certainly raise questions with the Department of Justice,” said Jim Robb, an economist with the Livestock Marketing Information Center.

Others believe the Justice Department may approve the deal.

“They will give it scrutiny,” Evan Stewart, an antitrust attorney and partner at the law firm Zuckerman Spaeder LLP, said. “Probably, given the market share of Tyson, it will probably not be bad for consumers, which is the usual test.”

Leading U.S. beef producer Tyson Foods Inc (TSN.N), had about 25 percent market share but that may have slipped last month when it ended cattle slaughter at its 4,000-head-a-day plant in Emporia, Kansas.

JBS entered the U.S. beef market in May 2007 when it bought the U.S. beef and pork company Swift & Co. from an investor group for $225 million in cash and the assumption of about $1.2 billion in debt.

Once the acquisitions are completed, JBS expects company-wide annual revenue to rise to $21.55 billion from $12.7 billion.

JBS TO KEEP BEEF PLANTS OPEN

The U.S. beef industry is struggling with an excess of processing capacity, sluggish exports, and a slowing economy.

During the call, Batista said JBS did not intend to close any beef plants to bring production down to match the cattle supply. But that could change.

“We will be studying what we can do to make this company as efficient as possible,” he said. “We don’t expect to shut down shifts, but we will be ready to do what is necessary to compete, to save costs, and to make money.”

DEAL LIFTS MEAT COMPANY SHARES

Shares of Tyson Foods and Smithfield Foods rose on Wednesday after analysts said the JBS deal would be good for both companies.

For Tyson, the deal means fewer beef companies buying U.S. cattle, which should strengthen its bargaining position with cattle producers, Kenneth Zaslow, food industry analyst at BMO Capital Markets, said in a research note.

Smithfield will pay down debt with the $565 million it receives for its beef operations, Pablo Zuanic, JP Morgan food analyst, said in a note.

Zuanic saw the deal as a way for the beef industry to better keep beef production in line with cattle supplies.

In New York Stock Exchange trading Wednesday afternoon, Tyson’s shares were up 9.79 percent, or $1.46 at $16.38 and Smithfield’s were up 4.12 percent, or $1.15, at $29.03.

Additional reporting by Diane Bartz, Washington, and Roberto Samora, Sao Paulo; Editing by David Gregorio

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