Tyson Foods to Buy Hudson for $642.4 Million

Tyson Foods Inc., the country’s largest poultry producer, said Thursday that it will buy Hudson Foods Inc. for $642.4 million. The purchase comes just weeks after Hudson recalled a record 25 million pounds of hamburger and shut down its beef production facility because of contamination by E. coli bacteria.

Only 25 miles separate the headquarters of the two Arkansas companies, both of which are family-owned businesses, and their top executives are neighbors and friends, according to spokesmen for both. Although Tyson has wanted to buy Hudson for a dozen years, the most recent merger talks began just last week, according to a Hudson spokesman.

Tyson will not inherit the Columbus, Neb., beef-processing plant that Hudson Foods closed last month after the largest such recall in U.S. history, prompted by the discovery of contamination of its beef by potentially deadly bacteria. At least 16 people suffered food poisoning after eating contaminated meat.

Hudson sold the plant to Iowa Beef Processors for an undisclosed amount last week, although Tyson and Hudson said the sale was not required as part of the deal. A Tyson spokesman said he did not yet know whether the Hudson brand name will disappear once the sale is complete.

Hudson stockholders would receive $8.40 a share in cash and 0.6 share of Tyson stock under the terms of the merger, which is subject to antitrust and shareholder approval. The combined company, which would be called Tyson Foods, would control at least 30% of the poultry market in the United States, according to analysts.

“I think even though Tyson is buying a company in a distressed situation, it’s not a distress price,” said John McMillin, an analyst with Prudential Securities Inc. “This does build a chicken powerhouse.”

By acquiring Hudson Foods, Tyson not only gains a larger share of the chicken industry, it also expands its poultry operations into turkey.

From a customer standpoint, Tyson and Hudson Foods have been competing in many arenas, including as suppliers for Wal-Mart Stores Inc.’s Sam’s Club warehouse outlet and restaurant chains McDonald’s and Boston Market, said Piper Jaffray brokerage analyst George Dahlman.

Hudson Foods’ brands include Hudson, Delightful Farms, Pierre and Schweigert.

“This will allow their customers to be serviced well,” Dahlman added.

Springdale, Ark.-based Tyson Foods, which was founded in 1947 as the Tyson Feed & Hatchery and has been run by the Tyson family since, says it is the largest poultry producer in the world, with $6.5 billion in sales last year. Hudson Foods, the fifth-largest U.S. poultry producer, recorded $1.5 billion in sales last year.

“The decision to sell was not an easy one or one that was made precipitously,” said James “Red” Hudson, who founded Rogers, Ark.-based Hudson Foods in 1972. “Tyson Foods has been our neighbor and friend for 25 years now. They have made us a very good offer.”

Hudson, 72, said at a news conference that he wants to retire. His son Michael T. Hudson is president and chief executive of the company. Red Hudson owns about 25% of Hudson’s stock and other family members hold large blocks. It has not been determined whether Michael Hudson and other family members will take positions at Tyson, according to a Tyson spokesman.

Leland Tollett, chairman and chief executive of Tyson, and Michael Hudson live on the same street in Little Rock and are members of the same corporate and charity boards and business councils, according to a spokesman for Hudson. “They’ve known each other for years,” he said.

In addition, Don Tyson, senior board chairman of Tyson, and Red Hudson are longtime friends.

Both companies have had unwanted publicity recently.

Don Tyson and son John Tyson last week received immunity from prosecution on charges of giving former agriculture secretary Mike Espy illegal gifts. Both testified before the grand jury in the investigation of Espy, who was charged in a 39-count indictment with receiving illegal gifts from companies his department regulated. The immunity does not extend to Tyson Foods and other Tyson executives, according to sources.

Thursday’s proposed deal comes a week after Hudson Foods agreed to sell its state-of-the-art raw hamburger plant to IBP following the voluntary recall. That deal, which is expected to close in a few weeks, would allow Hudson to completely exit the burger patty business.

The beef plant remains closed, and the company is awaiting instructions from the U.S. Department of Agriculture on what to do with about 6 million pounds of beef recovered in the recall. An Iowa Beef Processors spokesman said IBP is working with the USDA and hopes the plant will reopen in a few weeks.

Tyson shares rose $2.13 to close at $23.50 in Nasdaq trading. Hudson shares rose $3.94 to close at $21.13 on the New York Stock Exchange.