Smithfield Foods Inc. has announced that it has signed a non-binding letter of intent to form a 50/50 joint venture with Kansas City Sausage Company LLC, including its sister company, Pine Ridge Farms LLC.
The transaction will be funded with cash on hand and is expected to close in the fourth quarter of fiscal 2013, subject to customary closing conditions, including regulatory approvals. Terms of the letter of intent were not disclosed. Smithfield expects the transaction to be immediately accretive to earnings.
"With our strong ongoing focus on building our packaged meats business, and with 15 percent of the U.S. sow population, this joint venture is a logical fit for Smithfield," said C. Larry Pope, president and CEO of Smithfield. "It will provide a growth platform in two key packaged meats categories — breakfast sausage and dinner sausage — and will allow us to expand our product offerings to our customers. These categories represent over $4 billion in retail and foodservice sales annually. This is a big opportunity for Smithfield to grow in two categories that have not historically been a focus for the company.
"Kansas City Sausage is one of our largest live sow customers today," said Pope. "This joint venture will enable us to move raw material up the value chain from commodity live sows to branded packaged meats. We will merge Kansas City Sausage's low-cost, efficient operations and high-quality products with Smithfield's strong brands and sales and marketing team to continue to grow our packaged meats business. This combination should allow us to fill existing plant capacity and dramatically increase the joint venture's sales in a relatively short period of time."
With sales of approximately $200 million, Kansas City Sausage is a leading U.S. sausage producer and sow processor. The company has operations in Des Moines, Iowa, and Kansas City, Missouri. In Des Moines, the company produces premium raw materials for sausage, as well as value-added products, including boneless hams and hides. The Kansas City plant is the newest and most modern sausage processing facility in the U.S. and is designed for optimum efficiency to provide retail and foodservice customers with the highest-quality products.
"We are excited to partner with the largest packaged pork company in the U.S. to grow our business by joining our state-of-the-art operations and expertise in sow processing with Smithfield's portfolio of leading consumer brands and sales and marketing capabilities," said John Stadler, founder and chairman of Kansas City Sausage. "We believe that this joint venture will create significant value for both Kansas City Sausage and Smithfield."