Cargill forms venture to buy a chicken producer for $4.5B

Cargill Inc. is forming a joint venture to acquire the nation's third-largest chicken producer.

The Minnetonka-based agribusiness is joining Continental Grain to buy Sanderson Farms for $4.53 billion, a deal reached amid surging poultry prices and fierce competition.

As soon as the deal was announced Monday, Cargill executives began fielding calls from customers asking to buy chicken.

"Even before we were in the (U.S.) chicken business, we already had some large customers asking if we could get in (to the market)," Hans Kabat, president of Cargill's North American protein business, told the Star Tribune. "And then today when the announcement came out many of them are texting and calling back asking what the timeframe is for close and asking what this could mean for them."

Cargill is no stranger to running poultry operations. In addition to its large U.S. turkey business, the company has large chicken-processing plants throughout Asia, Latin America Europe and even Canada.

"Expanding our poultry offerings to the U.S. is a key enabler of our ability to meet customer and consumer demands," David MacLennan, chief executive of Cargill, said in a statement.

Cargill is one of the nation's largest producers of beef and turkey. It sold its U.S. pork business in 2015 to JBS USA.

The joint venture buyers will combine Sanderson Farms with Wayne Farms, an existing poultry subsidiary of Continental Grain's.

If approved by regulators, the combined company would control nearly 15% of all U.S. broiler production, according to data from Watt Poultry USA. Tyson Foods accounts for one-fifth of U.S. production, followed by Pilgrim's Pride's with 16% of the nation's output.

Recent U.S. Department of Justice investigations into price-fixing allegations could heighten scrutiny of any mergers in the meat industry, but this deal's market share isn't likely large enough to raise an antitrust issue, Credit Suisse analysts said in a report.

Cargill has been looking to enter the U.S. chicken market for the past five years. "We've been surveying the landscape a while," Kabat said. "Sanderson is a great, really well-run company."

Continental brings with it a half-century of experience in the U.S. chicken industry, something Cargill finds useful for its foray into the domestic market.

"What's really fantastic about this opportunity is it really hit all of the parts (of the industry) that we wanted to hit with one significant move," Kabat said.

In addition to market share, the deal gives Cargill a broad base a customers across all of its channels, including retail, food service, protein ingredients distribution and international.

"This combined business, we hope, will allow us to pursue growth across all of those channels," Kabat said.

Once Wayne and Sanderson are merged, with a separate management team and board of directors, it will have plants in Alabama, Arkansas, Georgia, Louisiana, Mississippi, North Carolina and Texas.

Continental and Cargill, both privately held, will buy Sanderson Farms for $203 per share in cash, which represented a 30% premium over its stock value on June 18 — the last full day of trading before media reports surfaced with speculation of the impending deal.

Shares of Laurel, Miss.-based Sanderson Farms rose more than 7% in trading Monday.

Upon the deal's closure later this year or early 2022, Sanderson Farms will become a private company, led by Wayne Farms CEO Clint Rivers, and no longer be traded on the NASDAQ exchange.

Chicken prices have surged in recent months on the reopening of restaurants and the new chicken products at fast-food restaurants. This has led to a shortage of various chicken parts, including wings, and put pressure on prices.