Smithfield acquires pork facilities and farms from Hormel

These acquisitions may be part of a larger strategy by Smithfield’s owner, WH Group.

Hormel Foods Corporation entered an agreement to sell a number of its pork production operations to Smithfield Foods, Inc., including Clougherty Packing, LLC, parent company of Farmer John and Saag’s Specialty Meats, along with PFFJ, LLC farm operations in California, Arizona and Wyoming.

The purchase price for Clougherty Packing LLC was US$145 million in cash, subject to working capital adjustments at closing. The transaction is subject to closing conditions, including the receipt of regulatory approvals, and is expected to close within 30 days.

“We appreciate the Farmer John, Saag’s and PFFJ employees’ dedication and commitment to their customers and consumers. While the businesses have performed well, they no longer align with our company’s growth strategies,” said Jim Snee, Hormel president and chief executive officer, in a press release. “This divestiture also allows for the integration of the pork processing facility at Farmer John with the majority of the live production operations which supply the facility, and are currently owned by Smithfield. We will work together to ensure a smooth transition for our employees and customers.”

"By folding Farmer John into our operations, we are better positioned to take advantage of our long-term strategic growth goals, which includes an increasingly diversified customer and consumer base and greater supply chain efficiency," said Kenneth M. Sullivan, president and CEO of Smithfield Foods, in a press release. "As we continue this transition and expand our operations, we are proud to welcome these new West Coast employees into our growing Smithfield family."

About the acquired companies

Founded in 1931, Farmer John pork production operations harvests approximately 7,400 hogs per day and, in fiscal 2016, the businesses accounted for approximately US$500 million in sales and earnings per share of approximately 3 cents.

Clougherty Packing LLC is based in southern California and is a integrated producer and processor of a line of branded pork products. Saag's Specialty Meats is a brand of deli meat and specialty sausage made without artificial flavors, colors, fillers, extenders or MSG. Altogether, the operations will add 2,000 employees, growing Smithfield's total workforce to 52,000.

WH Group acquisitions may increase in late 2017

These acquisitions may be part of a larger strategy by the parent company of Smithfield, WH Group. The South China Morning Post reported that WH Group plans to expand on its dominant position in the pork production industry and become a major player in other meat markets.

WH Group plans to launch these acquisitions once their net debt to equity ratio drops to a comfortable level, which may be at the end of 2017.