JBS Pursues Pilgrim's Pride Stake in $1.2B Deal

JBS, the global protein giant, has once again initiated a move to consolidate its ownership of U.S.-based poultry producer Pilgrim's Pride. The company is proposing to acquire the remaining 18% stake held by minority shareholders in a transaction valued at approximately $1.2 billion. This marks a renewed effort after a previous attempt in 2021 to fully integrate the subsidiary.

The current offer from JBS involves exchanging 2.086 shares of its own stock for each outstanding share of Pilgrim's Pride. This exchange ratio effectively values Pilgrim's Pride shares at $28.49, aligning closely with its recent closing price. The proposal is subject to review by an independent committee of Pilgrim's Pride directors and requires approval from a majority of the minority shareholders. Notably, the transaction does not necessitate a vote from JBS's own shareholders.

The strategic relationship between JBS and Pilgrim's Pride dates back to 2009 when JBS acquired a controlling interest during Pilgrim's Pride's Chapter 11 restructuring. The initial acquisition, costing $800 million for a 64% stake, valued Pilgrim's Pride at roughly $2.8 billion enterprise value and signaled JBS's significant entry into the U.S. poultry market. Since then, JBS has steadily increased its holdings to the current 82%.

This renewed acquisition attempt comes at a challenging juncture for Pilgrim's Pride. The company's recent financial disclosures reveal a substantial downturn in profitability. In the second quarter, EBITDA nearly halved year-over-year, with profit margins shrinking to 7.8% from 14.4% in the prior year. This decline is attributed to intensified pressure on chicken prices within the United States and increased competition from lower-priced pork in Europe.

Market data underscores the ongoing headwinds. U.S. domestic chicken processing margins have reportedly fallen by 40% compared to the previous year, according to industry analysts. This challenging market environment has impacted share performance, with JBS's stock experiencing a 8.6% decrease over the past twelve months, while Pilgrim's Pride shares have seen a more significant decline of 40.5%. The market capitalization for JBS stands around $15 billion, whereas Pilgrim's Pride is valued at approximately $6.8 billion.

The previous attempt by JBS in 2021 to acquire the minority stake faced significant hurdles. An initial offer of $26.50 per share was later raised to $28.50, but the independent committee of Pilgrim's Pride concluded that these valuations still substantially undervalued the minority shareholders' interests, leading to the withdrawal of the proposal in early 2022. The current offer, at a similar valuation, will likely face similar scrutiny regarding its fairness to all stakeholders.