Cargill and Continental Grain Company have jointly agreed to acquire Sanderson Farms, valuing the US poultry producer at $4.53bn at a time when demand for chicken meat has been soaring.
As part of the transaction, Sanderson Farms will combine with Wayne Farms, a subsidiary of investment group Continental Grain, to form a new privately held poultry business.
Under the terms of the deal, Sanderson Farms shareholders will receive $203 a share in cash, a 30.3 per cent premium to the company’s stock market price on June 18, before media reports that it was considering a sale.
Cargill and Continental Grain will control the newly combined company through a joint venture owned in equal parts, said people briefed on the matter.
The deal will allow Cargill to expand its international poultry business in the US, which is one of the world’s fastest-growing markets.
Since 1960, the average yearly consumption of poultry in the US has increased by 231 per cent to 113.3lbs a person, according to the US National Chicken Council. During the same period, the annual US consumption of red meat has fallen 17 per cent to 110.5lbs a person.
John Campbell, a managing director focused on the agriculture industry at boutique adviser Ocean Park Advisors, said that despite a growing number of Americans changing dietary patterns, often opting for meat alternatives, chicken consumption is expected to continue to rise.
“It’s all driven by demographics and population growth and income growth,” said Campbell.
Sanderson Farms and Wayne Farms, which together produced 7.4bn pounds of meat in 2020, will jointly have more than 25 processing plants and 26,000 employees across the south-east of the US.
The new company, which will be led by Wayne Farms chief executive Clint Rivers, will produce about 15 per cent of US poultry meat, according to Watt Poultry USA.
“Expanding our poultry offerings to the US is a key enabler of our ability to meet customer and consumer demands. With these great businesses, and our strong partnership, we believe we will deliver a superior portfolio of products and services to our customers,” said David MacLennan, Cargill chief executive.
The deal comes as Americans have been consuming chicken — seen as a healthier alternative to beef — at record levels both at home and in restaurants. The boost in demand for the meat has also been helped by the reopening of restaurants and fast-food chains making fried chicken, although it has also led to shortages in certain parts of the country.
Sanderson Farms, which is the third-largest US poultry producer behind Tyson Foods and Pilgrim’s Pride, had been approached by a number of suitors.
Analysts see the group based in Laurel, Mississippi, as one of the best performers in the sector.
Credit Suisse wrote in an analyst report that Sanderson Farms had “excellent facilities, good labour relations, and strong customer relationships” as well as “sales up 60 per cent over the past eight years through capital investments and underlying organic growth”.
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