Renowned multinational food company Tyson Foods Inc. has reportedly agreed to purchase Keystone Foods LLC in a $2.16 billion cash deal. Sources cite that the purchase aims to generate profitable sales to restaurants in the face of rising tariffs pressurizing meat companies in the United States.
Reports suggest that the acquisition is part of Tyson’s efforts to move away from the non-branded commodity meat business which is usually less profitable and susceptible to market swings.
According to Fox Business, the purchase includes an innovation center and six processing plants in the U.S. as well as three innovation centers and eight processing plants across China, Australia, Malaysia, South Korea and Thailand.
Tyson Chief Executive, Tom Hayes stated that the company witnesses this acquisition as a platform for overseas growth and expansion opportunities. Hayes further claimed that the deal will lessen the volatility of Tyson’s poultry business.
Reportedly, following the announcement Tyson shares shot up by 0.5% trading at about $62.68 and have dropped 23% year to date.
Analysts project poultry and red meat in storage to hit a record high this year with an unprecedented number of products being churned out by chicken and pork plants. Meanwhile, the trade war has caused major U.S. meat importers like Mexico & China to raise tariffs on U.S. meat products causing the prices to drop.
Seemingly, most of Keytone’s business is acquired from the U.S., with revenue coming in from fish filets and chicken nugget supply to restaurants. According to analysts, supplying to restaurants is relatively less profitable but is an incredibly stable business as opposed to selling branded products in grocery stores.
The merger will reportedly face regulatory reviews in the U.S., China and other regions. Hayes declined to comment whether Keystone clients including McDonalds approve of the deal.
For the uninitiated, Tyson Foods Inc., established 1935 is a major food company with a current workforce of 122,000.