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ConAgra Not for Tyson

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Tyson Stays Out Of ConAgra Sale Plans

By Michael Tilley
The Morning News

A report on the sale of certain ConAgra Foods assets mentions Smithfield Foods and Cargill as potential buyers -- but not Tyson Foods Inc.

Why? Tyson Foods can do better.

"If you're going to buy a branded company, you can buy a better brand," said John McMillin, a food and agribusiness analyst with New York-based Prudential Equity Group.

ConAgra announced last week it intends to sell its refrigerated meats business. The brands Omaha, Neb.-based ConAgra will sell as part of the deal include Armour, Butterball and Eckrich.

Three of ConAgra's five Arkansas plants could be involved in the sale. ConAgra plants in Huntsville and Ozark produce Butterball turkeys. A Jonesboro facility also processes the Butterball brand as well as Healthy Choice meats. The three plants have a combined work force of approximately 1,200.

In a Feb. 3 note to investors, McMillin listed Minneapolis-based Cargill Foods, Smithfield, Va.-based Smithfield Foods and Kansas City, Mo.-based Premium Standard Farms as potential buyers.

According to McMillin, the Butterball brand is the No. 3 whole-turkey brand with about $400 million in annual sales. The Armour and Eckrich brands have a 7 percent share of the sliced meats market and 7 percent share of the hot dog market with $300 million and $150 million, respectively, in annual sales.

"I guess it's (Tyson Foods buying the ConAgra units) always a possibility," McMillin said in a Tuesday phone interview. "But I think Tyson is looking at other options and other businesses ... I'm not sure they need the Armour brand to sell hot dogs."

Tyson Foods spokesman Gary Mickelson said Friday the company is "interested" in seeing how the ConAgra assets fit into the existing portfolio of Tyson Foods' value-added products.

Buying the ConAgra brands could potentially boost Tyson Foods' value-added sales by more than 67 percent. While technical differences in definition prevent a direct comparison to the annual revenue of the ConAgra assets expected to be sold, Tyson's prepared foods (value-added) segment posted fiscal 2005 revenue of $2.8 billion.

In the big picture, purchasing the ConAgra divisions would boost Tyson Foods total sales 7.3 percent when compared to the company's $26.01 billion in fiscal 2005 revenue.

"Butterball sells only whole bird turkeys, which is a highly seasonal business, and a buyer (maybe Cargill, but Smithfield and Premium Standard Farms are possible) would have to invest capital in an effort to broaden four plants to more value-added products," McMillin wrote in his Friday report.

Mickelson on Monday refused to disclose details of how the company would investigate buying the ConAgra brands.

Tyson Foods officials recently offered insight into its acquisition philosophy.

"Our future use of cash will first be to reinvest in our business," interim chief financial officer Dennis Leatherby said in a statement the company provided after its Friday shareholder meeting. "The next use of cash will be to evaluate acquisitions, with an emphasis on international expansion."

Leatherby said fiscal 2006 capital expenditures are budgeted between $600 million and $650 million.

Moving to boost value-added product lines -- where most sales have higher earnings margins -- could help stabilize Tyson Foods' revenue and income streams, according to New York-based Fitch Ratings.

On Feb. 1, the rating service downgraded its Tyson Foods outlook from positive to stable. Fitch cited expected weakness in poultry and beef sales for the outlook change.

"While diversification across protein products and geographies partially mitigates weakness in any one segment or region, Tyson is expecting near-term weakness in its two largest segments, including chicken, which provides the bulk of its operating earnings," Fitch said in a statement.

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