Commentary

Tyson Looks To Expand In Fast Foods With Purchase Of Keystone

Tyson Foods is paying $2.16 billion in cash for Keystone Foods, which purveys chicken, beef, fish and pork around the world. It also sells the chicken nuggets, wings and tenders, beef patties and breaded fish fillets served up in fast-food eateries.

Tyson cites the deal as “furtherance of its growth strategy and expansion of its value-added protein capabilities,” in a news release. 

In other words, “the purchase aims to further shift Tyson’s business toward higher-profit products, such as chicken nuggets and fish filets, and away from slabs of non-branded, commodity meat that tend to be less profitable and prone to market swings,” as Jacob Bunge writes for the Wall Street Journal.

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“Keystone provides a significant foundation for international growth with its in-country operations, sales and distribution network in high growth markets in the Asia Pacific region as well as exports to key markets in Europe, the Middle East and Africa. We look forward to serving customers with these additional capabilities and to welcoming Keystone’s dedicated team members to the Tyson Foods family,” says Tyson president and CEO Tom Hayes in a statement.

Keystone, which is based in West Chester, Penn., is owned by Marfrig Global Foods, which has headquarters in São Paulo, Brazil. Tyson is based in Springdale, Ark.

“Over the past four years, Tyson has spent billions of dollars on deals for supermarket standbys such as Hillshire Farms lunch meat and Jimmy Dean sausages, as well as upstarts like the organic brand Smart Chicken. Those acquisitions were geared toward lifting the company’s profit margins and insulating its sales from the type of commodity-market downdraft now vexing the U.S. meat sector. Still, Tyson last month lowered its profit forecast for the year, citing the effects of tariffs and ‘an oversupply of protein,’” the WSJ’s Bunge adds.

“The Keystone deal comes at a time when U.S. producers are grappling with weakening meat prices amid higher supplies and import tariffs imposed by China and Mexico in retaliation against U.S. duties on metal shipments,” points out Erin Arvedlund for the Philadelphia Inquirer.

“We're seeing so much consolidation in the food industry that it’s easier for these companies like Tyson Foods to call on clients -- food service or supermarkets -- and say ‘we have everything you need,’ any way to reduce time, without talking to multiple sales people, the better. There are economies of scale from merging functions of the firm,” John Stanton, professor of food marketing at St. Joseph's University in Philadelphia, tells Arvedlund. “We're seeing the same thing with consolidation in the pork industry,” Stanton adds.

Tyson knows that “some key customers will now have even fewer suppliers of meat -- but that doesn’t mean they should worry,” according to CEO Hayes, reports Deena Shanker for Bloomberg.

“The problems that arise from ‘concentrated’ suppliers usually have to do with limited plants and supply chains in times of distress, Hayes said Monday on a call with analysts to discuss the deal. Customers that used to buy from both Tyson and Keystone but now will be dealing with the one combined company can rest assured, he said, because the acquisition will mean Tyson has an increased number of plants,” Shanker writes.

Indeed, “the sale includes six processing plants in the U.S. with locations in Alabama, Georgia, Kentucky, North Carolina, Pennsylvania and Wisconsin, but does not include a beef patty processing plant in Ohio. Also included are eight plants in China, South Korea, Malaysia, Thailand and Australia,” Ben Miller reports for L.A. Biz. “Keystone employs approximately 11,000 people. In the past year, it reported annual revenue of $2.5 billion, [saying] it generated about 65% of its revenue from U.S.-based production and the remaining 35% from its Asia Pacific plants.”

Tyson yesterday was also celebrating making Fortune magazine’s “Change the World” list. It was ranked No. 44 on the list of 63 companies that “are doing well by doing good.” (Reliance Jio, which has amassed 215 million mobile Internet subscribers in India in just 22 months with free calls, “dirt-cheap data” and a “super-lowcost smartphone” is No. 1.) 

“Tyson is rethinking what it means to be a meat company, by investing in disruptive but more sustainable food ideas: Its venture arm has backed Beyond Meat, which is replicating meat using plants, and two companies that are growing meat from cells. Tyson is also battling antibiotic-resistant bacteria by moving to eradicate such drugs from the supply chain of its chicken business,” the Fortune citation reads.

Beyond Meat bills itself as “The Future of Protein”; with this deal, it looks like Tyson’s in good shape to be “The Future of Value-Added Protein.”

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