SMITHFIELD, Va. – Smithfield Foods, Inc. signed a non-binding letter of intent to form a 50/50 joint venture with Kansas City Sausage Company, LLC and its sister company, Pine Ridge Farms, LLC. The deal will allow Smithfield to expand its $4 billion breakfast and dinner sausage categories, according to the company.
Smithfield will fund the joint venture using cash on hand, and the transaction is expected to close in the fourth quarter of fiscal 2013 subject to regulatory approval and closing conditions. Terms of the deal were not disclosed. Smithfield expects the transaction to immediately boost its earnings.
"With our strong ongoing focus on building our packaged meats business, and with 15 percent of the United States sow population, this joint venture is a logical fit for Smithfield" said C. Larry Pope, president and CEO of Smithfield. "It will provide a growth platform in two key packaged meats categories — breakfast sausage and dinner sausage — and will allow us to expand our product offerings to our customers. These categories represent over $4 billion in retail and foodservice sales annually. This is a big opportunity for Smithfield to grow in two categories that have not historically been a focus for the company."
"Kansas City Sausage is one of our largest live sow customers today. This joint venture will enable us to move raw material up the value chain from commodity live sows to branded packaged meats. We will merge Kansas City Sausage's low-cost, efficient operations and high-quality products with Smithfield's strong brands and sales and marketing team to continue to grow our packaged meats business. This combination should allow us to fill existing plant capacity and dramatically increase the joint venture's sales in a relatively short period of time," he said.
Kansas City Sausage is a leading US sausage producer and sow processor with sales of approximately $200 million. The company has operations in Des Moines, Iowa and Kansas City, Mo. The Des Moines operation produces premium raw materials for sausage and value-added products such as boneless hams and hides. The Kansas City plant is described as the newest and most modern sausage processing facility in the US and is designed for optimum efficiency.
"We are excited to partner with the largest packaged pork company in the US to grow our business by joining our state of the art operations and expertise in sow processing with Smithfield's portfolio of leading consumer brands and sales and marketing capabilities," said John Stadler, founder and chairman of Kansas City Sausage. "We believe that this joint venture will create significant value for both Kansas City Sausage and Smithfield."