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ContiBeef & Smithfield Agree To Merge Cattle Feeding Businesses



BOULDER, Colo.--Feb. 16, 2005--Continuing their tradition of leadership and commitment to the beef industry, ContiBeef LLC, a subsidiary of ContiGroup Companies, Inc., and MF Cattle Feeding, Inc., a recently acquired subsidiary of Smithfield Foods, Inc., have agreed to form a 50/50 joint venture cattle feeding business. The new entity, whose name has yet to be determined, will include all six feedyards currently owned by ContiBeef and the four feedyards owned by Smithfield since October 2004.



The new entity will have facilities in five states (Colorado, Idaho, Kansas, Oklahoma, and Texas) with a one-time total feeding capacity of 811,000 head and expects to sell cattle to multiple U.S. beef packing firms throughout the U.S. using a variety of marketing methods, consistent with the manner in which ContiBeef's feedyards have operated historically.



The joint venture will be a stand-alone operating company, independent from both ContiGroup Companies and Smithfield Foods. Financing for the venture will be provided through a combination of equity investments by ContiGroup Companies and Smithfield Foods and a non-recourse senior credit facility arranged by Rabobank International. Further financial terms of the arrangement were not disclosed.



Mike Thoren, currently President and Chief Executive Officer of ContiBeef, will be named President and CEO of the joint venture. Thoren has served as President and CEO of ContiBeef since 2003. He began his career with the company in 1991. Thoren and a core team from both ContiBeef and affiliates of Smithfield Foods will manage the joint venture. Headquarters for the new entity will be located in Boulder, Colorado, the site of the current ContiBeef corporate office.



"We believe the merger is an exciting growth opportunity for both businesses, their employees, and for the cattle industry as a whole. ContiBeef's experience and a long-term commitment to the cattle business are what we bring to the table," Thoren said. "ContiBeef has been feeding cattle successfully in a highly competitive business for a very long time. That's what we do best. Our intention is that the new entity will continue with cattle feeding as its sole focus for many years to come."



The new entity expects to formally commence operations by April 30, 2005. Both ContiBeef and Smithfield Foods' feedyards will continue regular operations throughout the transition to the new ownership structure. Thoren added that "we expect a seamless transition for all of our customers."



ContiBeef LLC, a wholly-owned subsidiary of ContiGroup Companies, Inc., is one of the largest cattle feeding operations in the world marketing over one million head of cattle annually, most of which are company owned. Its six feedlots in Colorado, Kansas, Oklahoma, and Texas also provide a range of feeding and management services for outside customers.



Smithfield Foods, Inc., with annualized sales of $10 billion, is the leading processor and marketer of fresh pork and processed meats in the United States, as well as the largest producer of hogs. The Smithfield Beef Group is the sixth largest beef processor in the U.S.



The transaction is subject to regulatory approval and execution of a definitive agreement.
 
I've been contemplating this merger since I first heard about it and it brings a couple of questions to mind off the top of my head.

I don't question why a company would want to diversify, but if the US beef packing capacity is moving to Canada, why would Smithfield invest in expanding US located feedyards (811,000 head one time capacity :eek: )?

The second question is about competition, not among different "packers" but against the cluckers and oinkers. With Smithfield diversifying there protein sources, are they competing against themselves?
 

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