CALGARY - XL Foods Ltd. said it was selling its main beef slaughter and processing business to an Alberta rival in a deal aimed at consolidating homegrown operations in the face of multinational competition.
Calgary-based XL said it agreed to sell its main Alberta cattle slaughter, processing and hide businesses to privately owned Nilsson Bros. Inc. of Edmonton for about C$24 million.
Also included in the deal were an Alberta cattle ranch, about 400 XL employees and the “XL” and “Original Alberta Beef” trademarks, seen on many western Canadian supermarket shelves.
The transaction, which will leave XL with the cash and about 15 percent of its current operations, was expected to close early next year, pending shareholder approval.
The company began examining its future in Canada's hotly competitive beef business in July, when it hired financial advisers to look at ways to boost a lagging stock price. It had sales of C$214 million in the nine months ended June 30.
“XL Foods Ltd. has sought a solution to further enhance shareholder value over the last six months in the face of a difficult beef market,” the company said in a statement.
In Alberta, Canada's cattle country, XL and Nilsson are known in the industry as second-tier players. They compete against huge U.S.-based beef slaughter and processing operations run by Cargill Inc. and IBP Inc. (NYSE:IBP - news)
The purchase was described as a “natural extention” of Nilsson's growth strategy.
“We are limited in capital -- it's not as if you're talking to a billion- dollar corporation -- and we have to ask where our capital is best put to maximize returns,” XL Chief Executive Jim Pattillo told Reuters. “The beef industry is best consolidated and if we couldn't do it, then we should allow someone else to do it.”
Pattillo declined to say where the funds from the sale would be invested. The company also has a trading operation, a now-dormant coffee division and takes in royalties from various other businesses.
Alberta Cattle Commission general manager Gary Sargent said the deal was characteristic of a trend to consolidation and cost-cutting in the North American beef industry and would offer Alberta producers a stronger operation in which to sell their cattle.
"We're pleased that it's staying as a viable market alternative, Sargent said.
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