NEW YORK (CNNfn) - Food and agribusiness analyst Jeff Kanter of Prudential Securities comments on Tyson's buyout on Monday of IBP. There's good news and bad news about the deal, according to Kanter.|
On the upside, the purchase gives Tyson the opportunity to "leverage the Tyson brand across the entire meat case and become a giant in the industry," according to Kanter.
The downside? "The question is can Tyson make the pork and beef work together with the poultry. Other companies have had less success having all three businesses," Kanter said.
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 offered to pay $2.8 billion, or $26 a share, for IBP (IBP: Research, Estimates) -- that's above the DLJ leveraged buyout offer for $22.25 a share, the $25 a share all-stock deal offered by Smithfield foods -- are they paying too much?
Kanter: They're not paying too much. Tyson's (TSN: Research, Estimates) offer is slightly better than the Smithfield offer in terms of price. What makes Tyson's offer more attractive is that there's less regulatory risk and that it's part cash. There's not a big difference between $25 and $26.
The big difference is that Tyson is offering part cash while Smithfield's is all stock and there aren't major regulatory hurdles, particularly political hurdles, like Smithfield is facing.
CNNfn: IBP shareholders will receive 50 percent in cash and 50 percent in Tyson stock -- is this transaction good for both TSN and IBP shareholders?
Kanter: We'll see. The question is can Tyson make the pork and beef work together with the poultry. Other companies have had less success having all three businesses.
CNNfn: Tyson had been exiting the pork and seafood operations to focus on its poultry business -- IBP is the world's largest meatpacker -- is Tyson switching gears? Will Tyson be selling off the beef and pork assets?
Kanter: Tyson has a focus on poultry but this was a once-in-a-lifetime opportunity because you have the biggest beef and poultry company up for sale. For Tyson, this is an opportunity to go to the retailer with a larger voice to manage the whole meat case. This creates a giant of fresh meat. I don't think they'll be selling off assets.
CNNfn: What was most attractive about IBP -- was it their international business?
Kanter: It was an opportunity to leverage the Tyson brand across the entire meat case and become a giant in the industry, with unparalleled scale in dealing with global customers.
CNNfn: What's your outlook for the stock?
Kanter: This is a beaten-down stock that has started to work as the entire food industry has worked this year. There are still a lot of problems -- poultry fundamentals haven't been great. TSN will be in a holding pattern until they figure it all out. We have an accumulate on the stock.
CNNfn: What's your outlook for the food and agribusiness sector?
Kanter: The food industry, on the packaged-food side, has seen a lot of consolidation, and it's trickled down to the agribusiness side, where it's more competitive but it's refreshing, because agribusiness needs to consolidate. It's been suffering for three to four years, and consolidation brings more discipline to the industry. We're seeing now an acceleration in consolidation and that's what the agribusiness sector needs.
CNNfn: What's your favorite name in the group?
Kanter: Archer Daniels (ADM: Research, Estimates)
--reported by Carmina Perez