In Focus: Tyson Foods
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January 2, 2001: 12:56 p.m. ET
Prudential Securities' agribusiness analyst Jeff Kanter sees opportunity
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NEW YORK (CNNfn) - Though food companies may not have the sizzle of the technology or dot.com sectors in the investment world, they still provide a product that fulfills a basic consumer need – and can offer an opportunity to the savvy investor.
And Jeff Kanter, food and agribusiness analyst at Prudential Securities, suggests that such an opportunity may be available to those surveying the food industry, and to those willing to be patient.
That includes Springdale, Ark.-based Tyson Foods Inc., which has moved to acquire rival IBP, Kanter notes. "Short term, there's some uncertainty, but longer term you have a better company," Kanter said. Kanter also sees potential in Ralston Purina, Dean Foods, and Hains-Celestial, among others.
Read more of Kanter's commentary below:
In Focus airs daily on CNNfn's network at 12:10 p.m. The following includes comments made both during the show and in the pre-show interview.
CNNfn: Tyson has been in a bidding war with Smithfield over the ownership of IBP. Now Tyson is paying $30 a share for IBP. That's up from $26 a share it offered originally, and 35 percent higher than what the DLJ-led consortium offered 3 months ago. Are they paying too much?
Kanter: It's a very full price. It's probably more than they wanted to pay, but I'm not surprised they paid that much. This acquisition is a transforming event for Tyson. With this move John Tyson will clearly put his imprint into his father's company -- he will leave his mark in the Tyson legacy.
CNNfn: Tyson said buying IBP will triple their annual sales to an estimated $24 billion a year and make Tyson the leading poultry, beef and pork producer in the nation. Do you agree?
Kanter: Yes -- it will be a dominant company.
CNNfn: This acquisition will split Tyson's business into 30 percent beef, 33 percent chicken and 18 percent pork. Will Tyson
be able to make the transition into beef and pork successfully?
Kanter: Those percentages will be a moving target because there are cyclicalities, but it's about right. With this move they better be ready to move into beef and pork. They're the biggest company out there now; this is a move to solidify it in one fell swoop. They raise animals -- hogs -- but they don't slaughter them.
CNNfn: Are there any integration issues?
Kanter: There are more issues on the managerial side than with fiscal assets.
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Consolidation has been a major theme and going forward you have to be selective because consolidation premiums are built into the entire group.
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Jeff Kanter analyst, Prudential Securities |
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CNNfn: Will there be layoffs?
Kanter: It's more administrative-type stuff, not on the operational side. There's very little overlap -- it's a horizontal merger.
CNNfn: Will Tyson be able to brand beef and pork as successfully as it did chicken?
Kanter: That's the 64 thousand dollar question. My sense is yes. Retailer consolidation has caused consolidation in the packaged food business. There's been a slew of mergers but it's been less evident in agribusiness, but the same principles apply -- you can go to a retailer with a larger offering. This acquisition creates a stronger company down the road.
CNNfn: What's your outlook for Tyson (TSN: Research, Estimates) stock?
Kanter: It's down about a dollar right now. Short term, there's some uncertainty but longer term you have a better company.
CNNfn: What's your outlook for the food group?
Kanter: Consolidation has been a major theme and going forward you have to be selective because consolidation premiums are built into the entire group.
CNNfn: What are your favorite stocks?
Kanter: There are ways to play the consolidation game, like through Ralston Purina (RAL: Research, Estimates), and the Hain-Celestial Group (HAIN: Research, Estimates). Also Archer Daniels (ADM: Research, Estimates), Dreyer's Grand Ice Cream and Dean Foods (DF: Research, Estimates).
-- reported by Carmina Perez
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Tyson
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