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Exclusive: Teys, Cargill seal deal to merge

by Jon Condon, 10 May 2011

Teys Cargill LogoTHE relentless shift towards globalisation in the meat processing industry has taken another major step, with confirmation that major processors Teys Brothers and Cargill Beef Australia will merge.

The announcement to be made later this morning ends months of speculation about the future direction for Teys Brothers, following a decision by former business partner the Packer family to exit its interests in meat processing.

Under the arrangement, US-owned Cargill Beef Australia will buy the Packers’ stake in Teys, creating a 50:50 joint venture. This will turn the nation’s second and fourth largest beef processors into an industry behemoth with capacity to kill 1.5 million cattle a year – within sight of major rival, JBS Australia’s 1.98m head.

Because of Cargill’s US origins, the proposed merger will be subject to regulatory approvals, but there appears little likelihood of intervention by the Foreign Investment Review Board, given recent events. Similarly, the Australian Competition and Consumer Commission has been notified, and due process will apply regarding market competition, concentration of ownership and related issues. The lack of any serious competitive overlap between the businesses would suggest there is little likelihood of a challenge.

The initial reaction from industry analysts is that the merger is a ‘match made in heaven’, with little duplication in processing infrastructure, complementarity of product type and a strong fit in terms of management expertise, business strengths and overall business philosophy.
While neither partner will have a controlling interest, the senior management responsibility will rest squarely with the Teys camp – a testament to the depth of experience within the highly successful family-owned enterprise. Teys patriarch Allan Teys will chair the new entity from its headquarters at Beenleigh, Brad Teys will serve as chief executive officer, and Geoff Teys will be responsible for cattle procurement.

With the exception of some redundancies in admin and related areas due to the merger, senior management within the Cargill ranks will take up new leadership roles within the new business. The integration process, for example, will be led by respected Cargill Australia head Andrew McPherson. Board representation will be equally split between the two parties.

Synergy between parties

“This merger will create a new entity which is greater than the sum of its parts,” Teys chief executive Brad Teys told Beef Central early this week, in an exclusive briefing.
“The efficiencies we will achieve in economy of scale and flexibility across the country are really what both parties are seeking.”

From its humble beginnings in butchering in 1946, Teys has grown become Australia’s second largest beef processor and exporter with an enviable international product reputation and an annual turnover through its four plants in Queensland and South Australia of about A$1.2 billion.

“We’re proud of our heritage and confident this partnership with Cargill, a global leader in the food industry, will create a world-class company and a flagship for the Australian beef industry,” Mr Teys said.

”We’re committed to providing growth and opportunity for Australian cattle producers through focus on efficiency and improved domestic and export opportunities. The linking of Teys and Cargill brings together our combined strengths to provide the best support for Australian cattle producers. It strengthens our global marketing reach to expand markets for Australian beef and deliver best-in-class service to our strategic partners. It’s a winning combination for beef producers and for Australia,” he said.

The only region where the two entities start to rub shoulders, in a cattle procurement sense, is in central/northern NSW, where Cargill conducts a service kill and bones at its own facility near Tamworth, only about 700km from Teys’ export-oriented Beenleigh plant near Brisbane. All of that Tamworth turnoff, however, goes to a single domestic-weight customer, Woolworths, limiting any competitive friction.

For the Teys enterprise, the new alignment with Cargill provides an enormous lift in international marketing clout.

Just as the old Australia Meat Holdings company grew an extra leg in its penetration of new international markets after being taken over by Swift/JBS, Teys stands to benefit the same way.

Cargill’s international reach and distribution network has the capacity, well beyond that of Teys, to optimise carcase utilisation in a vast network of overseas customer countries.

Geographic spread of the four Teys and two Cargill processing operations also presents opportunities to overcome seasonal and weather-related supply difficulties, and underpin year-round supply to major clients, one analyst said.

While the current well-established commercial beef brands developed by Teys and Cargill will continue, both parties anticipate that opportunity might emerge in future to jointly supply large international customers under a common brand and quality specification.

Both companies also operate substantial single-site feedlot operations. Teys’ Miamba feedlot on Queensland’s Darling Downs is among the six largest feedlots in the country, with a capacity of 30,000 head and regular turnover of 90,000 head each year. Cargill operates the 19,000 head Jindalee feedlot in southern NSW, turning over around 55,000 head annually, giving a combined annual grainfed output of around 150,000 head.

Livestock competition

Cargill vice president, corporate affairs, Bruce Blakeman said his company had had a presence in Australia since 1967, and was keen to grow its investment interest in agriculture in this country.

“We see Australia – in a variety of commodities, not just beef – being a large producer of surplus food with the capacity to supply a lot of the world, both in the animal protein and grain and oilseeds sector,” he said.

Mr Blakeman said the Australian beef producer on the ground would notice little difference following the merger, because of the widely-dispersed nature of the two businesses.
“We see no likelihood of lesser completion for stock,” he said. “Producers that previously sold cattle to Teys Beenleigh will continue to do so, and those further south who have traditionally sold to Wagga will do the same. There is very little if any overlap in any significant way.”

Mr Blakeman said the merger made a lot of sense to the Teys family and Cargill, as both looked to grow their businesses.

“The Teys enterprise has some great assets and some great people, and there are operational aspects to their business that we are going to benefit from. On the other side, Cargill’s global scope and breadth in areas like research, international sales and marketing has strong attraction to the Teys network,” he said

Industry reaction

Cattle Council of Australia president Greg Brown’s immediate reaction was that CCA was not opposed, in principle, to the merger of the companies.

“Rationalisation in the meat processing sector has been ongoing for some years and this is a part of that evolution,” Mr Brown said.

“That being said, Cattle Council’s overarching position is that we do not support any action or activity that results in detrimental outcomes for beef producers through a reduction in market competition.”

“But there is no reason at this stage to suggest that this announcement falls into that category. We look forward to hearing more detail about the new commercial arrangements and trust that we continue the excellent working relationship that producers have enjoyed with both companies over many years,” he said.

 

• Next Beef Central update: Industry reaction, and the broader implications for the future



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