ConAgra Said to Be Seeking Beef Unit Buyer, Talking With Smithfield Foods

ConAgra Foods Inc., the No. 2 U.S. food company, is actively shopping its beef business to potential buyers, and has recently had talks with pork producer Smithfield Foods Inc., a source close to the situation said.

The move may be part of a broader attempt by Omaha, Neb.-based ConAgra to focus more on its retail products, such as Healthy Choice meals, Butterball turkeys, and Bumble Bee tuna, and to move away from commodity-oriented businesses that have pressured earnings.

Smithfield and ConAgra are not close to an agreement, the source said over the weekend, noting that Smithfield backed away due to ConAgra’s hefty valuation of the business. The source, who requested anonymity, did not disclose the price that was discussed.

“I know that Smithfield has been talking to ConAgra [about the beef business],” the source said. “As far as a deal, nothing is close.”

A sale to Smithfield, however, could help fulfill the No. 1 U.S. pork producer’s desire to expand into beef and provide more prepackaged offerings to grocers. Trumped late last year in its bid to buy No. 1 beef producer IBP Inc. by poultry giant Tyson Foods Inc., Smithfield has made no secret of its desire for acquisitions, and in recent months has been buying up regional meat-packing companies.

ConAgra’s beef business, based in Greeley, Colo., is the third-biggest in the U.S. and is believed to have $5.5 billion to $6 billion in annual sales, or about one-fifth the company’s total, analysts said. The company remains hesitant about the effect of a sale, concerned that should it sell the beef business, its reduced holdings might become vulnerable to a takeover, the source said.

ConAgra spokeswoman Karen Lynn declined to comment. Representatives for Smithfield, based in Smithfield, Va., could not be reached.

The beef business competes with larger rivals IBP and Excel Corp., part of privately held Cargill Inc. Its sale could be a critical first step toward appeasing ConAgra’s investors, who have been disappointed with the company’s stock and earnings performance, analysts said.

“ConAgra’s dirt-to-dinner strategy hasn’t delivered shareholder value in quite some time,” said Prudential Securities analyst Jeffrey Kanter. “The fact that [the beef business] is potentially up for sale at least suggests that management is trying to correct a corporate structure that just hasn’t worked in a while.”

In the past year, ConAgra has remained on the sidelines while its major food competitors, including Sara Lee Corp., Kraft Foods Inc., and Tyson have made big moves to consolidate the industry.

ConAgra’s stock is down 12% this year alone, closing at $22.95 a share Friday in New York Stock Exchange trading. In its fiscal year ended in May, the company’s operating profit was essentially flat at $1.86 billion, held back in part by declines in its refrigerated foods and agricultural products businesses.

ConAgra, the No. 2 U.S. food company behind Kraft, is best known for its retail brands. But its broad array of agricultural concerns includes poultry processing plants, grain trading and fertilizer manufacturing. Financial sources believe those units also are being scrutinized for potential sale.