Tyson Says Keystone Deal Won't Mean ‘Concentration’ Problems

(Bloomberg) -- Tyson Foods Inc. knows that its $2.16 billion purchase of chicken-nugget maker Keystone Foods LLC means that some key customers will now have even fewer suppliers of meat -- but that doesn’t mean they should worry, according to Chief Executive Officer Tom Hayes.

The problems that arise from “concentrated” suppliers usually have to do with limited plants and supply chains in times of distress, Hayes said Monday on a call with analysts to discuss the deal. Customers that used to buy from both Tyson and Keystone but now will be dealing with the one combined company can rest assured, he said, because the acquisition will mean Tyson has an increased number of plants.

Keystone is a major supplier to McDonald’s Corp. and other quick-service restaurants, known as QSRs. Hayes didn’t provide details on how much overlap there is in the customer base between the companies.

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Hayes also highlighted the access to international markets that the deal will provide. The purchase includes eight plants and three innovation centers in China, South Korea, Malaysia, Thailand and Australia, and will also help Tyson grow its exports to Africa, Europe and the Middle East, the company said. Tyson is buying Keystone from Brazil’s Marfrig Global Foods SA.

"Strategically we like the merits of the deal given the overlap of the customer base (QSR), value-added product mix and international growth opportunity,” analysts at Jefferies LLC said in a note. “Investors’ concerns will likely be focused on Keystone’s relatively low margin profile.” Jefferies has a buy rating on the stock, with a price target of $75.

Tyson shares rose 1.6 percent to $63.40 Monday in New York. Marfrig said the deal gives Keystone a total enterprise value of about $2.4 billion.

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