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Smithfield Acquires Premium Standard Farms

SMITHFIELD, Va. -- Smithfield Foods Inc. said it has agreed to buy Premium Standard Farms Inc. for $674 million in cash and stock.

The deal represents the latest expansion for Smithfield, which recently agreed to acquire most of the assets of the branded meats business of ConAgra Foods Inc., including the well-known Butterball brand. Smithfield, in partnership with investment group Oaktree Capital Management LLC, also recently bought the European meats business of food and apparel company Sara Lee Corp.

Under terms of the merger, each Premium Standard share will be converted into the right to receive 0.678 Smithfield shares plus $1.25 in cash. Smithfield, based here, said it expects the deal to be accretive to earnings per share upon closing, which is forecast to happen in the first calendar quarter of 2007.

Smithfield said all current Premium Standard hog production contracts will be honored, and that its facilities will remain open and in operation at least at current productions levels. Smithfield also said it remains committed to purchasing significant numbers of hogs on the open market.

Hog farmers were likely to protest the deal, which might delay antitrust approval, wrote Prudential Equity Group analyst John McMillin in a note to clients. McMillin said there is less than a 60 percent probability that antitrust officials will let the deal go through without some modifications, such as plant sales.

The transaction will require customary regulatory approvals as well as the approval of PSF's shareholders.
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