JBS to Pay $1.3 Billion for Primo as China Pork Tariffs Fall

08:39PM Nov 21, 2014
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JBS SA, the world’s biggest meat producer, said it plans to increase exports to Asia after paying $1.3 billion to buy Primo Group, the largest producer of ham and bacon in Australia and New Zealand.


JBS will also use the deal to produce more higher-cost processed foods, the Sao Paulo-based company’s Australian unit said in an e-mailed statement. Separately, JBS said yesterday it agreed to buy a Brazilian poultry business for $146.5 million.

Buying Primo gives JBS an opportunity to take advantage of pork demand in China which has led to a four-fold increase in imports of the meat since 2009, according to data compiled by Bloomberg. Australia currently exports minimal quantities of pork to the world’s biggest consumer of the meat because of the lack of certification for local products and tariffs of as much as 20 percent that will be removed by 2018 due to a free-trade agreement announced between Canberra and Beijing this week.

“People have money and therefore they’ll demand more high- quality meat,” Zhangyue Zhou, a business professor at James Cook University in Townsville, Australia, said by phone. Changing tastes will also support Australian exports as urban residents show more interest in “products like bacon that Chinese people don’t normally eat,” he said.

Pork makes up more than two-thirds of meat consumption in China, thanks to historical difficulties in transporting beef and lamb that made it and poultry the most affordable meats, he said.

Rising Demand
Demand is already increasing in China, which makes up about half of the global pig herd, and the country may account for more than 75 percent of worldwide pork-consumption growth during the next five years, according to Bloomberg Intelligence.


Securing certification of abattoirs and improving the export supply chain will be necessary to take advantage of the reduced trade tariffs, Emily Mackintosh, a spokeswoman for industry body Australian Pork Ltd., said by phone after the announcement.

“JBS is the logical owner of Primo,” Brett Sutton, head of Australia and New Zealand for the target’s controlling shareholder Affinity Equity Partners, said in the statement. “Primo will be positioned for even stronger growth over the longer term” as part of JBS.

Affinity, the private equity firm which in August paid $291 million for a stake in Virgin Australia Holdings Ltd.’s frequent-flier program, will sell its 70.1 percent share of the closely-held producer of packaged meats as part of the deal. It bought the stake in 2011.

JBS shares were little changed at 10:19 a.m. in Sao Paulo.

In a Brazilian regulatory filing yesterday, JBS said its Foods unit agreed to pay $169 million for all shares in AMSE02 Participacoes Ltda., owner of Grupo Big Frango which slaughters about 460,000 birds a day and has annual sales of more than $397 million.