Leucadia plan to sell National Beef
Leucadia owns a 79% stake in the Kansas City, Mo.-based beef giant, a 26-year-old supplier of steaks, hamburger and other beef products. A sale would see Leucadia exit a big bet on beef at a time when the industry is rebounding from a rough patch, thanks to rising consumer demand and cheap grain prices.
Leucadia purchased the National Beef stake in 2011 for 868 million USD and is working with advisers to explore options for that stake, people familiar with the matter said. It is unclear how much the business might fetch from a suitor. National Beef ranks among Leucadia’s largest businesses. The New York conglomerate’s biggest is the financial firm Jefferies Group. It has also invested in industries ranging from lumber production to gold mining to a foreign-exchange brokerage.
Leucadia is weighing the sale as profits fatten for processors such as National Beef, which slaughters about 12.5% of U.S. beef cattle. Beef exports in 2017 climbed nearly 13%, according to estimates from the U.S. Department of Agriculture, led by growing sales to Japan, Hong Kong and Korea. Foreign sales of U.S. beef are projected to climb another 4.5% in 2018.
Demand for beef is climbing as the cost of raising cattle has declined. Feed, the biggest cost involved in raising livestock, remains cheap. U.S. farmers last fall harvested what is expected to be another record corn and soybean crop, the latest in a string of bumper harvests that has driven down crop prices. Ranchers have responded by raising more cattle, helping boost the size of the U.S. beef cattle supply by 12% since early 2014 when a drought had forced many ranchers to reduce the size of their herds.
Leucadia bought its stake in National Beef as part of a long-term bet that a growing and more-affluent global population would put more beef on dinner tables. Executives then acknowledged the meat business’s exposure to price swings, and as the beef industry struggled against drought and other challenges, National Beef lost money in 2013, 2014 and 2015.
In 2016, National Beef swung to a 329 million USD profit, and over the first three quarters of 2017 National Beef’s profit jumped 61% to 310 million USD from the same period in the prior year. In a regulatory filing, Leucadia listed the net book value of its National Beef investment at 629.8 million USD as of Dec. 31, 2016.
National Beef ranks as the fourth-largest U.S. beef processor behind Tyson Foods Inc., JBS SA and Cargill Inc. Besides beef, the company also sells cattle hides to leather makers for clothing, furniture and car seat covers.
Source: The Wall Street Journal