Mexican chicken king seeks deals north
MEXICO CITY - Mexico's biggest chicken producer is scouring the United States for acquisitions to gain a bigger share of the world's largest poultry market.
While Industrias Bachoco has 35 percent of the Latin American nation's poultry market, it has just 2 percent in the U.S. after buying OK Industries Inc. in 2011, Chief Financial Officer Daniel Salazar Ferrer said.
"We are in search of and hoping for alternatives for increasing our participation in the U.S.," Salazar said in an emailed response to questions. "We have to increase our critical mass to have a better competitive position."
Bachoco, based in Celaya, Mexico, joins larger rivals Tyson Foods and JBS's North American poultry unit Pilgrim's Pride Corp. in seeking a greater share of North America's food market. The Mexican company is among just eight of the 50 members of the BI North America Food Manufacturing Valuation Peers Index that generate more cash than debt as rising chicken prices and a 33 percent decline in global corn prices in the past year boost earnings.
Shares in the Bachoco fell 0.5 percent to 57.01 pesos in Mexico City Monday, paring a gain this year to 29 percent. Bachoco has advanced 13 percent in the last month, almost double the average gain among global peers tracked by Bloomberg. Tyson has fallen 8.7 percent in the same span, while Pilgrim's Pride is up 0.5 percent.
The rally has taken Bachoco's market value to $2.62 billion. Of the four U.S. poultry companies tracked by Bloomberg, only Sanderson Farms Inc. and Cal-Maine Foods Inc. are less valuable at $2.19 billion and $1.74 billion, respectively. Bachoco has the third best ratio of net debt to earnings before interest, taxes, depreciation and amortization among North American peers with negative 1.38, compared with the average ratio of positive 2.09.
"The company has strong fundamentals for continued growth and, as protein consumption increases in Mexico, Bachoco will be one of the chief beneficiaries," Miguel Mayorga, a Latin America food manufacturer equity analyst at Corporativo GBM, said by phone from Mexico City. "Without question there are mergers and acquisitions in the pipeline for the company."
Bachoco has made three acquisitions in Latin America and two in North American since 1999, according to data compiled by Bloomberg. Morgan Stanley advised the company in the purchase of Grupo Campsi. Tyson's bid for Hillshire Brands Co. is one of five U.S. poultry deals to be announced in the past 12 months.
The company held its first conference call with investors following first-quarter results in February as part of a strategy to improve communication.
The stock has also been boosted by an increase in trading volume after the free float was lifted to 26.75 percent from 17.25 percent, according to Alberto Carrillo, a senior analyst at Signum Research.
"The corporate governance has improved and has really strengthened the company," Carrillo said by telephone from Mexico City. "They have been much more transparent and providing investors with more information about the company."