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JBS Swift’s proposed acquisition of western US and Texas/Kansas region packing plants of National Beef and Smithfield are being reviewed by the US Department of Justice for possible forced divestiture or imposition of other remedies, two sources familiar with the review told mergermarket.

JBS’s planned purchase of Loveland, Colorado-based Five Rivers Ranch Cattle Feeding, is also a center of review by DOJ, said the sources.

JBS Swift, based in Greeley, Colorado and a subsidiary of Brazil-based JBS, agreed in March to acquire Kansas, Missouri-based National Beef Packing, for USD 970m, and at the same time, purchase the beef operations of Smithfield, Virginia-based Smithfield Foods for USD 565m.

The three-party deal, which requires DOJ approval, would catapult JBS Swift into the largest US beef processor from its current number three position.

The concentration of top tier buyers - the deal would result in a reduction of such national buyers to three - has led to much expression of concern within the industry, said the sources, adding that overall market concentration is always part of a DOJ deal review and this case is certainly no exception.

The sources said that overall market concentration could be exacerbated in this industry because of perishability - slaughtered cows generally must be sold within two weeks, and because the relatively few head packer buyers have substantial market power as compared to the thousands of producers.

According to the sources, the DOJ is examining the effect that the combination of National Beef’s Brawley, California plant and Smithfield Beef’s Tolleson, Arizona facility, will have on competition, particularly in the US steer and heifer market - a market deemed more sensitive to local combinations than the overall wholesale beef market, said the sources.

A second regional market undergoing similar examination, said the sources, is the combination of JBS Swift’s Cactus, Texas plant with National Beef’s two Kansas plants in Dodge City and Liberal.

The sources did note that Cargill and Tyson have substantial presence in that latter region, with Cargill also having a plant in Dodge City, and helping the contention that sufficient competition will still exist post-merger. They said that if these concentrations from the proposed merger were found to be too negative for competition in the market, one remedy could be divestitures of some or all of the plants. They added that the status of Five Rivers Cattle Feeding, heretofore a 50/50 joint venture between Smithfield and Continental Grain, but which under the planned deal JBS Swift would gain full ownership, is another strong area of inquiry.

The vertical integration resulting from JBS Swift’s proposed acquisition of Five Rivers, which claims to be the world’s largest cattle feeder, and the effect that acquisition would have on fed cattle prices, is the center of that line of inquiry, said the sources. They noted that as to Five Rivers, remedies other than a forced divestiture exist, such as restrictions that would require Five Rivers to continue to be run as a stand-alone entity.

At and immediately after the time of the deal announcement, JBS downplayed the possibility of any divestitures, a stance which a source at one of the companies described to this news service then as being “bravado,” explaining that JBS could offload, or the DOJ could force, at least some asset disposals or restrictions.

After that report, later in March, JBS CEO Joesley Batista said that some asset disposals were possible from the deal. One further area for eventual possible disposal or closure, said the sources, is in the northeast US, as depending on demand, the need of JBS for both Smithfield’s Souderton, Pennsylvania plant, the largest beef processor east of the midwest US, and National Beef’s plant in Hummel’s Wharf, Pennsylvania, could become questionable.

JBS declined further comment. DOJ also declined comment.

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