The Department of Justice has requested additional information on the proposed acquisition of Sanderson Farms by a consortium comprising Cargill Inc. and Continental Grain Company.
The Agency has not provided any reason for the request, but it is understandable given the value of the transaction at $4.5 billion representing $203 per share. The intercession of the DOJ reflects concern expressed by agricultural associations and Congress over consolidation in the meat industry. The transaction would merge Sanderson Farms with Wayne Farms, but the relative ranking of Sanderson Farms as the third largest broiler producer would not change as combined production would be less than second-ranked Pilgrim's Pride and Tyson Foods, the industry leader.
Should the transaction be terminated as a result of an adverse decision by the Department of Justice relating to consolidation and monopoly, Sanderson Farms would be liable for a termination fee of $158 million. Accordingly, Sanderson Farms in an SEC filing stated, "the payment of a termination fee may also have an adverse impact on our financial condition and could affect the structure, pricing and terms purposed by a third party seeking to acquire or merge with us or detour such third party from making a competing acquisition proposal".
Sanderson Farms had a market capitalization of $4.18 billion, posted after FY 2021 results were released on December 21st. Possibly as a result of the DOJ request, Sanderson that opened at $190.50 on Wednesday, December 22nd fell to $187.36 by 15h00 and has traded in a narrow range thereafter. SAFM was priced at $187.49 after the Christmas weekend attaining $187.49 at 10H00 on December 27th.