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Each week, we report at least one instance where the money junky hedge funds, private equity groups and the already big company swallows another piece of the global economy. Last week, we saw several and note them in the following articles…
POULTRY INDUSTRY SEES TWO BIG TAKEOVERS. Food giants Cargill and Continental Grain have formed a joint venture, owned in equal parts, to buy Sanderson Farms, a $3.5-billion Mississippi company ranked as the U.S.’s third-largest poultry producer, The Wall Street Journal reported.
Sanderson shareholders will receive $203 per share in cash, a 30.3-percent premium above the stock’s 18 June price, the day before reports of the sale broke in the news media.
By taking over Sanderson, Cargill will expand its U.S. poultry business at a time when demand for chicken is soaring, the WSJ noted.
Under the deal, Sanderson will be delisted from NASDAQ, taken private, and combined with Wayne Farms, a Continental subsidiary, to form a new, privately held poultry business.
The blended business will employ 26,000 people in at least 25 processing plants in the southeastern U.S. Last year, the two companies processed 7.4 billion pounds of poultry and together will produce about 15 percent of the U.S. poultry supply, according to the WSJ.
Sanderson has been a takeover target because it is among the best financial performers in the agricultural sector, the WSJ said.
Cargill, founded in 1865, is the largest privately-held U.S. company in terms of revenue, dealing in products and services ranging from human and animal nutrition to beauty items to risk management.
The $14-billion Continental Grain Co. owns agribusinesses around the world, as well as the brands Panera Bread, Dr. Pepper, Keurig and KraftHeinz.
In the second big poultry-industry merger announced last week, JBS S.A., the world’s largest meat processor, will buy the 20 percent of Colorado-based Pilgrim’s Pride that it does not already own in a deal that will value Pilgrim’s, the U.S.’s second largest poultry processor, at about $6.5 billion.
Pilgrim’s, founded in 1946, operates 30 processing plants around the country and dozens of hatcheries, feedlots, and rendering operations and has been expanding into the market for organic meat.
In June, Pilgrim’s paid $952 million to buy Britain’s Kerry Consumer Foods.
CHESAPEAKE BUYS VINE ENERGY FOR $2.2 BILLION. Chesapeake Energy, one of the original U.S. shale oil producers, completed bankruptcy in February and now has agreed to buy Vine Energy, another shale producer, for $2.2 billion in cash and shares.
Chesapeake completed the deal with help from Blackstone Inc., one of the largest U.S. private equity firms, which controls almost three-quarters of Vine’s share.
When the sale is completed, Blackstone will own almost 10 percent of Chesapeake’s shares, making the private equity giant one of Chesapeake’s largest shareholders.
The purchase will expand Chesapeake’s production from 400,000 barrels of oil equivalent per day to 600,000.
The company has pledged to distribute 50 percent of its free cash flow to shareholders every quarter, beginning in 2022.
Buying Vine will enable Chesapeake to expand its base dividend by 27 percent, the company said.
The combined $9-billion company will be a dominant player in the gas-rich Haynesville Shale, a formation in northwest Louisiana.
The formation is close to terminals being built in the Gulf of Mexico to export liquefied natural gas.
Chesapeake has pledged that its gas will be produced in accordance with environmental, social, and regulatory strictures regarding waste and emissions.
Chesapeake pioneered hydraulic fracturing in oil shales but was burdened by debt and rarely profitable.
The U.S. shale oil industry collapsed amid 2020’s economic crisis that drove oil prices below shale’s break even point. (See “Oil and Gas Company Defaults Still on the Rise,” Trends Journal, 5 January 2021.)
The collapse has left struggling shale producers to be takeover targets: the industry saw $30 billion in mergers and purchases during this year’s second quarter and analysts expect more to come, according to the Financial Times.
PRIVATE EQUITY FIRM BUYS GERMAN PET SUPPLY HOUSE. Zooplus, a German online retailer of pet supplies, has agreed to be bought for €390 per share in cash, a total of about €3 billion, by U.S. private equity firm Hellman & Friedman.
The sale price represents a 40-percent premium to the share price before the sale was announced; after the news broke, the stock price jumped 40 percent to €394, the Financial Times reported.
The company’s stock price has risen about 300 percent since March.
Zooplus booked sales last year of €1.8 billion, 19 percent above 2019’s level, and its stock price has risen about 300 percent since March 2020, when people bunkered at home began adopting more pets to keep them company.
Spending on pets rose 8.7 percent worldwide last year, the FT noted, with about 17 percent of sales made online.
Zooplus has set a goal of taking 10 percent of online pet supply sales by 2025.
Through its new ownership, Zooplus will “gain additional sector expertise, hands-on support, financial flexibility, and the long-term focus needed to seize this unique market opportunity,” Cornelius Patt, who will continue as Zooplus’s CEO after the sale, said in a statement announcing the deal.
Private equity companies have been especially active in the pet market in recent years, as consumers have shown more willingness to spend on companion animals, from premium foods to comforts to fashion.
BC Partners bought PetSmart in 2015 and online pet food retailer Chewy in 2017; EQT in Sweden bought IVC Evidensia in 2016, which itself had bought hundreds of independent veterinary practices.
Hellman & Friedman manages about $50 billion in assets, including AutoScout 24, a European online car dealer, and German online publisher Axel Springer.
TRENDPOST: Largely unnoticed outside the financial community, private equity firms and other Bigs are munching their way through the global economy, swallowing the most profitable opportunities—not by out-innovating, out-competing, or out-managing competitors, but simply by using the weight of their wealth to buy what they please.
Private equity companies have made 6,928 acquisitions or takeovers in the first half of this year, their busiest six months since records began to be kept in 1980.
The more of the economy they own, the more power and control they can swing—not only in the business world, but also in politics and in influencing social norms.
With the desecration of the Robinson-Patman Act, Sherman Antitrust Act, Clayton Antitrust Act and Glass-Steagall Act by American politicians who get paid off with “campaign contributions,” aka bribes and payoffs… the small business, mom and pops, local bank have been replaced by the few who own the most.
And as the Bigs grow bigger without limits, there is little need for advancement and innovation since there is no competition in the fight for market share. Overall, with a few selling the most, there are less consumer choices for wide varieties of products and services that would be available if there were more businesses in the sectors.