Pilgrim's Pride Corp. on Wednesday announced that the company will sell 64 percent of its new common stock to JBS S.A. for $800 million in cash, according to a news release from the company. Pilgrim’s Pride previously had filed for reorganization under Chapter 11 bankruptcy.

Read the company news release.

The overall transaction is valued at around $2.8 billion. JBS currently has no stake in the poultry industry, and the deal potentially would make the meatpacker a direct rival to Tyson Foods, which produces beef, pork and poultry. The acquisition will, however, need to pass scrutiny at the Department of Justice, where competitiveness issues are high on the agenda.

Prior to this week’s announcement, Mississippi State University Extension Economics Professor John D. Anderson, PhD. University wrote the following commentary about how the DOJ might approach this acquisition.

Meat industry mergers and acquisitions

Commentary from MississippiStateUniversityExtension Economics Professor John D. Anderson, PhD.

Last week, the Wall Street Journal (WSJ) reported that Brazilian meatpacking giant, JBS, would soon be announcing a bid to purchase Pilgrim’s Pride Corporation, one of the largest poultry companies in the US.  According to the WSJ article, Pilgrim’s Pride and Tyson Foods, Inc. both hold about a 22 percent share of the US poultry market. 

The bid for Pilgrim’s comes less than a year after the Department of Justice (DOJ) filed suit to block JBS’s purchase of National Beef.  The National bid was part of a larger deal involving JBS’s acquisition of the beef packing operations of Smithfield foods as well as the feeding operations of Five Rivers Ranch.  These other components of the deal were allowed to go through, but the National purchase was scotched on the grounds of industry concentration. 

DOJ’s formal complaint noted that, post-merger, over 80 percent of the beef packing industry would be controlled by a three-firm oligopoly consisting of the newly-configured JBS, Tyson Foods, and Cargill (for a copy of the DOJ complaint filed in US District Court in Northern Illinois, click here.

If JBS does, in fact, make a formal bid for Pilgrim’s Pride, DOJ will be faced with an interesting decision on how to evaluate the deal. Under the Obama administration, DOJ has signaled their intention to bring a renewed focus to competition issues in the agricultural sector, even joining with USDA to announce a series of public workshops to be held in early 2010 to solicit input from stakeholders on agricultural competition issues. 

The potential acquisition of one meat industry behemoth by another will certainly generate competition concerns, both among industry participants and government regulators. Even so, it may be difficult for DOJ to find sufficient objective grounds to oppose the acquisition. 

For one thing, the acquisition will have no effect on industry concentration within the poultry sector because JBS currently has no stake in the poultry industry. DOJ may decide to d