RICHMOND, Va. — Pork processing giant Smithfield Foods Inc., which owns Circle Four Farms in Utah, said Monday it won the bidding in an auction for bankrupt Farmland Industries Inc.'s pork business.
As part of the agreement, Smithfield will pay $367.4 million in cash for almost all the assets of the Kansas City, Mo., company's pork division, Farmland Foods. It also will assume $90 million in pension obligations, boosting the combined value of the bid to $457.4 million.
Smithfield rival Cargill Inc. of Minnetonka, Minn., earlier said it would pay $385 million for Farmland Foods, beating Smithfield's initial offer of $363.5 million. During Sunday's auction, it essentially matched but would not top Smithfield's final bid, said Mark Klein, a Cargill spokesman. "We had to set our limits," he said.
"Obviously, we are disappointed that we did not prevail in the auction," said Bill Buckner, president of Excel Corp., Cargill's meat processing subsidiary.
Andrew Wolf, an analyst with BB&T Capital Markets, said he had been somewhat concerned about prices escalating during a possible bidding war between Smithfield and Cargill. "It turned out there wasn't (one)," he said.
If Smithfield receives U.S. Bankruptcy Court approval later this month, it expects to complete the purchase by early November.
In trading on the New York Stock Exchange, Smithfield shares rose $1.64, or 8.5 percent, to close at $20.85.
The auction took place at the headquarters of Farmland Industries, a large farmer-owned cooperative that filed for Chapter 11 bankruptcy protection in May 2002.
The deal came despite complaints from Senate Finance Committee chairman Charles Grassley, R-Iowa, and Sen. Tim Johnson, D-S.D. They had asked antitrust regulators at the Justice Department to examine the sale, saying the government should prevent Smithfield, already the nation's largest pork processor with $8 billion in annual sales, from grabbing an even larger chunk of the meat market.
Critics say a trend toward contracting between livestock raisers and big processors like Smithfield has been contributing to the ranks of independent farmers going out of business.
Farmers can sign agreements to raise animals for large companies like Smithfield and receive a guaranteed set price for livestock even when prices drop.
Those who do not sign contracts sometimes struggle to sell their animals to meat packers because they are competing with contract farmers. On the other hand, farmers who sign agreements could be left struggling if a large processor breaks its contract.
Last week, the Justice Department permitted the sale of Farmland, rejecting arguments that the company that buys it will get closer to monopolizing the pork business.
A Smithfield spokesman said the pork processor's market clout does not match the shares of players in comparable industries.
"We will have 27 percent of the hog slaughter market," spokesman Jerry Hostetter said. "There are companies in the chicken and beef industries that have larger shares."