New-York based Leucadia National Corporation (LUK) recently consummated acquiring roughly 78.95% interest in National Beef Packing Company, LLC (National Beef), one of the largest beef processing companies in the United States.
The controlling interest in National Beef was acquired by Leucadia for approximately $867.9 million, to be paid out of the latter’s existing cash and investments. Other minority holders of the target company include U.S. Premium Beef, LLC (USPB), NBPCo and Timothy Klein, and the Chief Executive Officer of National Beef. The parties involved had signed a purchase agreement for the transaction on December 5, 2011.
Pursuant to the terms of the transaction, National Beef becomes a subsidiary of Leucadia. Also, National Beef entered into a Cattle Purchase and Sale Agreement with USPB, according to which the latter will ensure delivery of cattle from its members to National Beef. On the other hand, National Beef will purchase an amount of about 735,385 heads of cattle annually from USPB.
Leucadia engages in manufacturing oil and gas drilling services, gaming entertainment, real estate activities, medical product development operations and various other investment activities in the United States.
We believe the company largely benefits from extensive diversifications into a variety of businesses. The company’s strategy to grow through acquisitions of companies in crisis increases its profitability. However, investing in volatile materials such as base metals reduces the value of the company’s investments. The company competes with other players in the industry including Apollo Investment Corporation (AINV) and The Blackstone Group (BX), among others.
The current Zacks Consensus Estimate for the fourth quarter of 2011 is a 24 cent loss, representing annual decline of 103.55%. Estimates for the fiscal years 2011 and 2012 are a loss of 64 cents and earnings of $1.58, representing a year-over-year decline of 108.36% and growth of 346.88%, respectively.
We currently maintain a Neutral recommendation on Leucadia.
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