Tyson Is Close to Buying Nugget Maker Keystone Foods

(Bloomberg) -- Tyson Foods Inc. is close to acquiring Keystone Foods LLC, a U.S. supplier of chicken nuggets to McDonald’s Corp., according to two people familiar with the matter.

Tyson is in exclusive talks with Keystone’s owner, Brazil’s Marfrig Global Foods SA, said the people, who asked not to be named because the discussions are private. Representatives of Marfrig and Springdale, Arkansas-based Tyson declined to comment on the talks.

Marfrig is seeking to raise more than $3 billion from the sale of the business, people with knowledge of the matter said in May. Marfrig said that month that it had selected five bidders for the final phase of the sale process, which included visits to Keystone factories in the U.S. and Asia and the submission of binding offers in June.

A deal valued at about $3 billion would be Tyson’s largest since it acquired sandwich maker AdvancePierre Foods Holdings Inc. in 2017. Under Chief Executive Officer Tom Hayes, Tyson, the largest U.S. meat company, has been trying to expand its range of prepared-foods offerings. As well as chicken nuggets, Keystone also makes beef patties, ready-to-cook chicken wings and fish filets.

Asian Operations

“Tyson’s acquisition of Keystone would likely have a mixed market reaction,” Stephens Inc. analyst Farha Aslam, who holds an overweight rating on the stock, said in a report. “Tyson has made several acquisitions in the last five years, but the bottom line benefit has been mixed.”

Tyson shares closed 0.2 percent lower at $63.56 in New York on Friday while Marfrig dropped 0.6 percent to 7.90 reais in Sao Paulo.

Keystone had revenue of $2.8 billion last year and has operations in seven U.S. states as well as in South Korea, China, Malaysia, Thailand and Australia. While its American assets account for almost 70 percent of sales, the food-service company has experienced stronger growth from its Asian arm.

Marfrig said in April it would use some of the proceeds from the Keystone sale to pay for its $969 million acquisition of a controlling stake in National Beef Packing Co., the fourth-largest American beef-packing company. The rest of the cash will be used to pay down debt, which should slash the Brazilian meatpacker’s leverage.

Besides Tyson, Keystone has attracted bids from Cargill Inc., China’s Cofco Ltd. and an unidentified Japanese firm, two people with direct knowledge of the matter said in June. George’s Inc. -- a family-owned chicken producer based in Springdale, Arkansas -- also presented a binding offer.

Marfrig, controlled by Marcos Molina dos Santos, considered selling Keystone’s U.S. and Asian operations separately, a person said in May. Marfrig hired JPMorgan Chase & Co. to find a single buyer and would still prefer that outcome, the person said at the time.

Cofco has close ties to Keystone. It has held a 15 percent stake in one of Keystone’s four units in China for 25 years, according to Marfrig. And in 2011, Cofco formed a joint venture with Keystone as part of an effort to invest in food-distribution centers in China, although the plan was never implemented.

©2018 Bloomberg L.P.