Tyson Foods Inc. on Tuesday declined to comment on a report that it is working to purchase a West Coast chicken company.
Television news network CNBC reported Tuesday that two unnamed sources familiar with the deal said that Tyson is negotiating the purchase of privately owned Foster Farms for about $2 billion.
If a deal is struck, the sources said "it is still at least several weeks away."
Spokesmen for Tyson and Foster neither verified nor denied the report.
"We are fully confident in our future success as a stand-alone company," a spokesman for Foster Farms said Tuesday.
A Tyson spokesman said the company does not comment on rumors.
Shares of Tyson dipped briefly around noon, on news of the deal, then picked back up in midday trading. Shares fell less than 1 percent to close Tuesday at $61.69.
Tyson, the nation's largest meat company, supplies meat and poultry products to customers around the world under a mix of brands, including Hillshire Farm and Wright. According to the company's website, it produces about 1 in 5 pounds of all chicken, beef and pork sold in the U.S.
The reported talks come just months after Tyson closed on a $2.16 billion acquisition of McDonald's supplier Keystone Foods, expanding its operations in Asia. Shareholders were notified of the deal's completion in November.
Noel White, Tyson's president and chief executive officer, said in a fourth-quarter earnings call that his priority is no different from what his predecessors have been -- "to profitably grow our value-added businesses."
"It's growing this business in a profitable, sensible way while containing some of the costs that have crept in as well," White said when asked what his biggest contribution will be in 2019.
The purchase of California-based Foster Farms, which processes chicken and turkey and makes prepared foods, would be a departure from Tyson's recent acquisitions but it fits with the company's growth strategy of buying businesses that process foods.
In 2014, Tyson bought Hillshire Brands through a merger agreement valued at $8.55 billion, which brought brands like Jimmy Dean and Ball Park under its umbrella. Since then, Tyson has snapped up food companies to expand its capabilities -- AdvancePierre and Original Philly holdings -- and invested in food startup companies Beyond Meat and Memphis Meats.
Martin Thoma, principal of marketing agency Thoma Thoma, listed a number of reasons why Tyson would want to purchase Foster Farms including expansion of its market share and production growth.
"It could be a play to acquire some niche products that could reach new consumer groups," Thoma said.
In recent years, Tyson has developed protein snacks and breakfast products, like Hillshire Farm meat and cheese packs and Jimmy Dean Simple Scrambles breakfast cups, to cater to busy consumers.
Keeping with the same idea, Foster Farms debuted a chicken snack called Bold Bites in October, which are fully cooked, ready-to-eat chicken breast pieces served in pouches. Foster marketed the product as quick protein addition for salads, wraps, tacos or soups.
Thoma also saw some similarities with the Hillshire deal of 2014.
"Tyson can make hot dogs and sliced meat, but in the Hillshire play, it wanted the brand equity in those loved, long term, well advertised products," Thoma said. "So if it's looking at Foster it may be looking at a high value portfolio of food brands that could fill out their own portfolio."
Ken Shea, a senior food and beverage analyst at Bloomberg Intelligence, said the deal would be a way for Tyson to lift its operating margin.
"Maybe they will provide more insight on Thursday," Shea said referring to the date Tyson will release its first quarter 2019 earnings report and hold a conference call for analysts. Tyson reported $40 billion in total sales for fiscal 2018.
"I'm sure they will be asked directly or indirectly about today's rumored deal."
Business on 02/06/2019