990270 Smithfield to Buy Carroll's For $500 Million

Smithfield, VA - Smithfield Foods Inc. said it plans to buy Carroll's Foods Inc., the nation's second largest hog producer, for about $500 million in stock and cash in a deal that is expected to add to earnings in fiscal 2000.

Smithfield, the largest processor of fresh pork and meats such as bacon and bologna, said the proposed deal will consist of 3.3 million shares of Smithfield common stock, $178 million in cash and the assumption of about $216 million of debt.

The deal includes Carroll's ownership interests in its joint hog production arrangements with Smithfield and will move Smithfield up from the No. 4 hog producer to a close second behind Murphy Family Farms.

“Given our perception that the trend in hog prices over the next 12 to 24 months will be up, we believe that this acquisition will be accretive to Smithfield Foods' earnings in fiscal 2000 and will substantially enhance its earnings in fiscal 2001,” Smithfield Chief Executive and Chairman Joseph W. Luter III said in a statement.

Company spokesman Aaron Trub declined to give specifics on Smithfield's outlook. Hog prices have recently started to bounce back from 57-year lows to reach about 27 cents a pound on Thursday.

Industry analysts applauded Thursday's proposed deal.

“It's a perfect strategic fit,” said George Shipp, analyst at Scott & Stringfellow, through he questioned the timing of the move given the prior collapse in hog prices, which had led to a reduction in supply.

“Carroll's has been a partner of Smithfield and is already selling most of its hogs to Smithfield. It is well managed and the least-cost operator in the country,” added Shipp.

In his statement, Luter said the deal with Carroll's would be a major step toward a long-term Smithfield strategic goal of becoming more vertically integrated. He said Carroll's would increase Smithfield's level of vertical integration to about 27% from about 11%.

Smithfield, which has had a 12-year relationship with Carroll's, said it intends to retain the Carroll's Foods name and does not anticipate any changes in the Carroll's management team, although it will take advantages of synergies between its hog production operations.

Smithfield reported better-than-expected third-quarter earnings for fiscal 1999 on Thursday, with net income in the quarter ended Jan. 31 rising to $55.0 million or $1.31 per diluted share from $23.7 million, or 60 cents per share in the same quarter a year ago.

Revenues were down at $1.04 billion versus $1.10 billion. The company said its meat processing group compensated for sizable losses by its hog production group.

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