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Pilgrim's Pride acquires ConAgra poultry operations to become nation's second largest chicken producer

(Friday, June 13, 2003 -- CropChoice news) -- Dow Jones Newswires via the Agribusiness Examiner: Pilgrim's Pride Corp.'s pending acquisition of ConAgra Foods Inc.'s chicken business was a "compelling opportunity" in a consolidating industry, its president said [June 9].

He might have been speaking as well for ConAgra, which has been seeking to pare its commodity business and become more of a pure, packaged-foods company in an industry where heft increasingly counts. ConAgra also has struggled for years with poultry processing's vacillating financial results.

"Having a wide footprint in today's marketplace cannot be underestimated," said O.B. Goolsby, president and chief operating officer of Pilgrim's Pride, which with the $590 million purchase moves to No. 2 in domestic chicken processing and distribution, behind Tyson Foods Inc.. Goolsby spoke on a conference call.

The deal gives Pilgrim's Pride nationwide distribution of fresh and processed chicken products, additional cooking facilities and one of its biggest customers --- ConAgra.

Terms call for ConAgra, which has Banquet, Marie Callender's and Healthy Choice brand chicken items, to treat Pilgrim's Pride as its preferred supplier of chicken for five years.

With pro forma annual sales of $5 billion, Pilgrim's Pride would leapfrog Gold Kist Inc. as the second-largest U.S. chicken company, with an estimated 16.3% market share behind Tyson's 23%, according to figures provided by Pilgrim's Pride during a conference call.

Before the deal, which is expected to be completed in the third quarter, Pilgrim's Pride, Pittsburg, Texas, was third with an 8.5% market share behind Gold Kist's 9.2%.

"We anticipate taking advantage of the strong brands they have," Goolsby said of ConAgra's poultry labels, which include Country Pride and Pierce, among others.

For ConAgra, the deal's pluses not only follow the recent shedding of most of its commoditized fresh-beef business. They also portend what Deutsche Bank Securities analyst Eric Katzman said would be no material impact on either its earnings per share or cash flow in the current fiscal year and beyond.

It also gets ConAgra out of a business with less predictability than packaged-foods.

"Poultry industry fundamentals have been very difficult," Katzman noted. He said that in fiscal 2002 poultry generated $83 million of earnings before interest and taxes, or EBIT, but is expected to deliver only $11 million of EBIT in fiscal 2003, which ended in May. ConAgra said it would take a $112 million pretax charge in fiscal 2003's fourth quarter, although only $12 million of that would be a cash outlay.

Katzman doesn't personally own ConAgra shares but Deutsche Bank expects to receive or seek investment-banking compensation from the company within the next three months.

Shares of Pilgrim's Pride traded recently at $8.95, up 43 cents, or five percent. ConAgra shares traded at $25.18, up nine cents, or 0.3%. Both trade on the New York Stock Exchange.