Leucadia National Corp., a holding company with investments in casinos, copper mining, wineries and other businesses, agreed to pay $867.9 million for a 79-percent stake in National Beef Packing Co., LLC, the No. 4 U.S. beef processor.
Tim Klein, chief executive with Kansas City, Mo.-based National Beef, said he looks forward to Leucadia "bringing its unique perspective to our industry," according to a Dec. 5 statement posted on National Beef's website.
The deal will "widen the scope of opportunities available to us and will further strengthen our ability to expand our business and solidify our position as the premier global beef processor," Klein said.
National Beef's operations and management structure will remain unchanged after the transaction is completed and Klein will retain his role as CEO, according to the statement. The transaction is expected to close by the end of this year.
Steve Hunt, chief executive of U.S. Premium Beef, LLC, the majority owner of National Beef, said the sale will "address the liquidity desires" of his company's producer-owners, while "maintaining our highly successful cattle supply system and a sizable investment in beef processing," according to the statement.
"Our goals for the future of National Beef are aligned and we look forward to a long and successful partnership," Hunt said.
Leucadia's purchase, the company's first investment in the beef industry, comes as the combination of record-low U.S. cattle inventories and robust exports send beef prices surging to multi-year highs. But meatpacker margins have come under pressure as they're forced to pay record-high prices for slaughter-ready cattle.
For Tyson Foods, Inc., the largest U.S. meat processor, operating margings in beef fell to 3.4 percent during the previous quarter from 4 percent for the same period a year earlier, the Springdale, Ark.-based company said last month.
Nationwide, beef processors lost an average of nearly $57 on each animal slaughtered during the week ended Dec. 3, according to Sterling marketing, Inc.
Glynn Tonsor, an economics professor at Kansas State University, said Leucadia's purchase reflects a broader trend of outside investors seeking increased exposure to agricultural assets, such as farmland, as traditional investments such as stocks are roiled by economic woes.
Leucadia's purchase "is likely supported by fundamentals suggesting global demand for beef may be in a growth stage," Tonsor said in an e-mail.
However, the biggest risk is meatpacker margins will continue to be pressured by tight cattle supplies, he added. Additionally, the potential that global economic struggles will hurt beef demand "presents additional risks for this and related deal possibilities," he said.
In a statement filed Dec. 5 with U.S. securities regulators, Leucadia, based in New York City, didn't say why it's getting into the beef business or provide details on any plans for National Beef. Julie Terpak, a Leucadia spokeswoman in New York, declined to comment.
Leucadia's investments include Inmet Mining Corp., which mines for copper ore in Spain, and Crimson Wine Group, which operates over 400 acres of vineyards in California's Napa Valley and in Oregon, according to Leucadia's 2010 annual report filed with the U.S. Securities and Exchange Commission.
Other investments include Premier Entertainment, operator of a Hard Rock Hotel &; Casino in Biloxi, Miss., and Berkadia Commercial Mortgage, LLC, a joint venture with Berkshire Hathaway Inc., the Omaha, Neb.-based holding company controlled by Warren Buffett. The company had $1.32 billion in revenue and "other income" in 2010, according to the annual report.
While Leucadia offered no elaboration on the rationale behind the National Beef deal, the company's top executives appear willing to share their opinions on the nation's economic and political condition.
In Leucadia's 2010 report, chairman Ian Cumming and president Joseph Steinberg noted several "lurking" problems for the country, including a "huge, dangerous debt" and Congress" "eternal mud fight with no adult supervision." The executives said they backed a plan from the National Commission on Fiscal Responsibility and Reform, a bipartisan panel created by President Obama last year to find ways to balance the federal budget.
National Beef will come under the control of a publicly-traded company two years after the processor dropped plans to hold an initial public offering. In October 2009, National Beef said it planned to raise as much as $300 million in an IPO, then two months later postponed the sale because of weak market conditions, according to government filings.
Founded in 1968 in Liberal, Kan., National Beef was once part of Farmland Industries, the agricultural cooperative that declared bankruptcy in 2002. In 2003, U.S. Premium Beef, also based in Kansas City, Mo., bought a majority stake in National Beef.
National Beef operates three plants with combined capacity to slaughter as many as 14,000 head of cattle a day. That ranks the company behind only Tyson, Cargill Inc., and JBS USA in terms of total U.S. slaughter capacity, according to figures from Cattle Buyers Weekly.
In the fiscal year ended Aug. 27, National Beef's net income rose 4.6 percent, to $258.5 million, while sales rose 18 percent, to $6.85 billion.