A bid by Smithfield Foods, the nation's largest pork producer and pork processor, to acquire IBP Inc., the biggest beef processor and second largest pork packer, has encountered stiff opposition.
U.S. Agriculture Secretary Dan Glickman called on the Justice Department to closely review Smithfield's $4.1 billion bid ($2.7 billion in stock {$25/share} and $1.4 billion in debt assumption) for rival meatpacker IBP. Glickman expressed concern about how the merger could affect competition in the meatpacking sector.
IBP has been mulling a $22.25/share bid by an affiliate of Donaldson, Lufkin & Jenrette. IBP management has declined comment on the current bid by Smithfield Foods. A special committee of independent board members of IBP indicated willingness to enter into negotiations regarding a possible merger.
Four U.S. senators asked the Justice Department to block the proposed merger. Democrats Byron Dorgan of North Dakota, Tom Harkin of Iowa, Tim Johnson of South Dakota and Paul Wellstone of Minnesota urged antitrust officials to closely check the deal.
Sen. Charles Grassley (R-IA) echoed concentration concerns. Combining the two packing giants would give Smithfield a 36-38% share of pork slaughter capacity, he says.
American Farm Bureau Federation (AFBF) urged the Justice Department to launch a "thorough investigation" that "carefully scrutinizes" the proposed purchase and its effect on America's pork producers.
Besides controlling more than a third of U.S. pork packing with the acquisition, Smithfield would also be the biggest packer in all of the major pork-producing states, says AFBF President Bob Stallman.
National Farmers Union (NFU) called on the Justice Department to reject the proposed buyout. NFU supports legislation to give more resources and authority to the departments of Justice and Agriculture to respond to rising market concentration in agriculture.
National Farmers Organization opposes the merger because regional and local hog markets could be eliminated for many U.S. producers.
Iowa Pork Producers Association (IPPA) President-Elect Joel Van Gilst said the offer by Smithfield to divest itself of some inefficient plants or production operations to appease concentration concerns is not an answer. "We need to make sure that Iowa farmers are offered more opportunities through such large-scale mergers, not become victims of reduced market competition."
In response, Smithfield chairman and chief executive officer Joseph Luter III told the National Pork Producers Council (NPPC) the merger would ultimately benefit producers.
"With beef and pork under one roof, we would be much better positioned to create new opportunities for producers by expanding our retail shelf space and offer retailers centralized purchasing and procurement," says Luter.
NPPC expressed some merger concerns. "Of critical concern to pork producers is the potential impact of this acquisition on industry slaughter capacity," NPPC said in a statement.
