041043 Smithfield Likely to Buy Swift & Co.

Greeley, CO - It may not be a question of if Smithfield Foods will buy Swift & Co. in Greeley, but when, an analyst with the cattle industry says.

Smithfield purchased four cattle feedlots -- including ones east of Kersey and near Gilcrest in Weld County -- from ConAgra Foods earlier this month. Steve Kay, publisher of Cattle Buyers Weekly, said the feedlot purchases may be the first step by the Virginia foods company in buying Swift, which employs more than 2,000 people in Weld County.

"I think the key question now is whether Smithfield will make a bid for Swift sooner or later," Kay said.

Swift & Co.'s history in Greeley and Weld County dates back to 1930 when Warren Monfort began feeding cattle on his farm north of the city. The company became Monfort of Colorado with the addition of the two feedlots that have a capacity of more than 175,000 head of cattle and the building of a beef processing plant on Greeley's north side in the early 1960s.

In the late 1980s, a third feedlot was added east of Yuma in eastern Colorado. It was about the same time when Monfort merged with ConAgra Foods, which also bought Swift & Co., then headquartered in Dallas, Texas, and brought it into the ConAgra Red Meats family.

In September 2002, ConAgra sold its fresh meat division to Hicks, Muse, Tate and Furst, a Texas investment firm, and Booth Creek Management owned by George Gillett Jr. of Vail. That group took the old Swift & Co. name, which dates back to 1875, then built a new headquarters at Promontory in west Greeley.

ConAgra retained a minority interest in Swift. That 45% interest was bought by Swift late last month, but ConAgra retained ownership of the feedlots, including the three in Colorado and one in Idaho. Smithfield bought those in a deal announced the middle of this month. While terms of that sale were not announced, Kay thinks Smithfield bought the four lots for as little as $10 million or as much as $36 million.

"Either way, they got the lots for a pretty good price," Kay said, noting that ConAgra was not concerned about getting a full market value for the facilities.

Rich Vesta, president of the Smithfield Beef Group, said the sale is part of a long- term strategic fit for the group. He added that it addresses cattle procurement concerns west of the Mississippi River, while providing a new earnings stream for the business.

Vesta, who was with the original Swift & Co. when it moved to Greeley from Dallas, spent last week talking with management and viewing the three Colorado feedlots Smithfield got from ConAgra. He said he worked in Greeley for two years.

"There's a fine management team in place and there will be no change," Vesta said, adding the four feedlot operators will answer to Don Willms of Eaton, who joined Smithfield a couple of months ago after managing the Gilcrest feedlot for ConAgra for the past few years.

Vesta said Smithfield is also looking for office space in Greeley for 15-20 employees. But his focus is on the feedlots.

"We see a lot of value in the cattle we'll have in these lots and there is a lot of opportunity for those cattle, but other than that, I can't say much about our plans at this point," Vesta said. "We do feel, however, that we just purchased the best feedlots in the United States along with the best team to run them."

Dick Monfort, the last of his family to head ConAgra Red Meats, thinks Smithfield will negotiate something and said it would not surprise him if Smithfield at least made an offer to buy Swift. Presently, he said, the closest Smithfield beef packing plant is in Tolleson, Ariz., on the west side of the Phoenix metropolitan area. That's a long way to haul fat cattle ready from feedlots in Colorado.

"The (Greeley) packing plant needs the feedlots and the feedlots need the packing plant. It's not like one has leverage on the other. So I would think Smithfield would negotiate something," Monfort said, adding what he's been hearing is that Smithfield will buy Swift & Co.

Kay, in a telephone interview from his California office, said if Smithfield does not buy Swift, then it would be in a position to sell the feedlots to someone else and turn a profit. But he said observers told him that it doesn't make sense for Smithfield to buy the feedlots without it being a move towards expanding its beef-processing capacity.

ConAgra still owns the cattle that was in the feedlots at the time of the sale. Swift has an exclusive supply agreement with ConAgra until the end of the year, but at the end of that agreement, new cattle being moved in will be owned by Smithfield, and there is no agreement as yet between Smithfield and Swift for the processing of those cattle. Vesta said Smithfield has already moved some cattle into the lots.

Would that mean Smithfield would make a bid to buy Swift at that time?

"That's certainly a possibility," Kay said. Monfort also said that would make sense.

In his publication, Kay said he has been told that it will cost Smithfield $300 million to replace all the cattle in the four feedlots -- which has a one-time capacity of 375,000 head -- if it owned them all. His sources told him that it wouldn't make sense for Smithfield to tie up that much capital without having a motive beyond feeding cattle.

Kay said that while Smithfield may buy Swift's beef operation, which includes Australia's largest beef processor, it's doubtful that the Justice Department would allow Smithfield to buy Swift's pork business. Smithfield is already the largest pork producer in the U.S. and if it took over Swift it would have a market share of 34%.

"That would evoke considerable opposition in hog-raising country as well as in Congress," Kay said in his publication.

Jim Herlihy, spokesman for Swift & Co., said the company has a policy of not commenting on any rumors concerning any possible sale.

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