Talking with Sam Rovit, Swift & Co.

When Sam Rovit agreed to take the top job at Swift & Co two years ago, he wasn’t banking on the business becoming front line news. Sure, lots of friendly press on the brand would have been nice. But the news was about pre-Christmas ICE raids that emptied the plants of every worker who was even remotely of Latin heritage, killed production for weeks and drilled a deep, cash hemorrhaging hole in the corporate P & L.

One would also guess that it was a well-aimed shot through the corporate heart of the Swift organization, fired by a sharpshooting Michael Chertoff. Swift had worked long and hard with the feds in an effort to solve the lingering problems created by illegal immigrants. For their efforts, they were expecting a major “attaboy” from the feds, not Chertoff’s stern lecture that sat cross-wise to what Swift had been told by an ICE Investigations Director a few weeks before the raid.

• What Michael Chertoff said, post ICE raid: "Over 400 workers were terminated, quit or did not show up. ICE wasn't notified and we don't know where those 400 workers are. . . . We asked the company not to do that. We asked the company not to reveal that we were going to be coming in in advance because common sense tells you, if you do that, everybody who is illegal is going to flee."

• What ICE Investigations Director Marcy Forman's Oct. 26 letter said: "I feel compelled to write you to clarify a point. . . . Specifically, at no time has anyone from ICE told any Swift official that they cannot take action against employees who Swift determines, on its own, are unauthorized to work in the United States."

Hey, you didn’t expect the right hand to know anything about the left hand, did you? These are the same people who brought you the continuing afternoon soap opera that’s known as Hurricane Katrina.

Swift’s financial losses, already burdened by the closure of Asian markets, accelerated after ICE’s raid and spurred rumors of takeovers, buy outs, and even selling the company piece-by-piece. The wolf was definitely at the door, huffing and puffing and threatening to blow the entire corporate house down. Survival meant a merger or being acquired. It was unavoidable.

Fortunately, mergers and acquisitions are a part of business that Rovit knows well. Shortly before joining Swift, he co-authored a book called “Mastering the Merger.” With partner David Harding, he poked a hole in the generally accepted idea that M & A’s were good for business. Far from creating wealth for shareholders, they failed 70% of the time. More often that not, such practices destroyed value and signaled the end of the road for the CEO.

But Rovit wrote the book on the pitfalls of poorly planned M & A’s…literally.


Swift & Co. was sweet talked by many and Rovit refused to expand on the juicy details. It was a dark horse, JBS-Friboi, Latin America's biggest beef producer, that would gallop out of Brazil and buy the debt-laden meat packer. For a reported $225 million and an assumption of $1.16 billion in debt, the cowboys from Brazil expanded their reach into the lucrative but until now forbidden U.S. market and gained a potential foothold in Asian markets. It will create the world's largest beef producer in terms of animals slaughtered, easily surpassing Tyson and Cargill.

Just how big will the new organization be? In 2006, JBS-Friboi and Swift slaughtered 9.6 million head of cattle and had about $11.5 billion in total sales. The combined businesses have the plant capacity to slaughter 47,100 cattle a day, topping Tyson's capacity of 37,100 and Cargill's 36,000.

"What we see as important are the distribution channels Swift has, both in Japan and Korea and also in the United States," JBS-Friboi's CEO, J. Mendonca Batista, said. He’s betting on the future, of course, since those Japanese and Korean channels aren’t exactly open for deep draft shipping.

Rich Nelson, an analyst with Allendale, Inc., expanded the scope of those distribution channels, telling MEAT&POULTRY’s Steve Bjerklie, "JBS becomes a very serious player in the global meat industry. With Swift’s operations in Australia, JBS becomes the No. 1 meat company in Australia, the No. 1 meat company in Brazil, and the No. 3 meat company in the U.S."



Nelson pointed out that the acquisition also bodes well for Mercosur, the trading partnership shared by Brazil, Argentina, Paraguay, Venezuela and Uruguay. It gives them almost instant access to the U.S. and our NAFTA partnership.

On the downside, though, JBS-Friboi’s acquisition seems to ignore one of the major points in “Mastering the Merger” – determining the target's value under "business as usual" conditions. In his book, Rovit wrote that most of the purchase price should reflect the business as it is, not as it may be after you own it. Batista might be rolling some big bones, betting on the quick return of Swift’s Asian markets and access to a healthy cash flow from its North American operations.

You can bet one of Rovit’s other major points – integrate quickly in critical areas - will be at the top of the Friboi agenda. The attempt to integrate the Brazilian and American business cultures will be interesting to watch. Its success or failure might well be the real key to the success of the deal. And with Rovit's recent announcement that he will step down as soon as the merger is completed, the successful integration of the two businesses is a long way from assured.

Whatever happens, the JBS-Friboi/Swift & Co. deal is one of the watershed moments in the history of the American meat industry, more impactful in the long run than the rise of IBP and the development of boxed beef four long decades ago. It signals the beginnings of a truly international beef business.

Interviewing Sam Rovit was an interesting exercise. Like most successful CEO’s, he can play his cards close to the vest and get expansive on issues that rile his sense of fair play.

Q. The company was hurt by the loss of beef exports when Japan and Korea temporarily shut its borders to American beef, then again when ICE executed the pre-Christmas raid on your plants as part of an identity-theft investigation involving immigrants. How badly did those events hurt the business?

A: The loss of beef exports to key Asian markets such as Japan and Korea hurt the entire U.S. beef processing industry, not just Swift. While Swift’s volumes are below historical norms for both markets, our relative share has increased in the region and we look forward to building on that strong position as market access improves over time.

With respect to the December 12, 2006 ICE event, our latest financial impact estimate is $45 million to $50 million for the fiscal year ended May 27, 2007.

Q: The ICE raid created a lot of concern in the cattle business. Swift had worked with the government at trying to solve the illegal immigrant problem yet the company was singled out, nonetheless. What was behind the raid – political issues? A desire by ICE to make a high visibility statement to American business? And was it in anyway justified considering the final outcome?



A: Immigration policy is divorced from enforcement and the American employer is caught in the middle. Congress must pass immigration legislation that will fix a terribly broken system.

What seems bewildering is that an employer who follows all rules, would be treated by ICE in an adversarial as opposed to a collaborative manner when problems surface. Yet that is exactly what happened to Swift.

We are at a loss to understand how the December ICE raids could have been avoided. Swift is one of the few employers who checks all social security numbers through the government’s Basic Pilot program. Separately, every employee had to provide a government issued photo ID, and we cannot specify which of 29 forms of ID the applicant must supply, nor ask for additional forms. The law requires that we accept documents that on their face appear genuine. All employees had properly documented I-9 forms. Over the years, we’ve retained outside experts to scrutinize our hiring processes.

Simply put, a company cannot legally and practically do more than we have done to ensure a legal workforce with the current tools – and anti-discrimination guidelines – available from the government and no current or former member of management has been charged with any wrong doing.

Q: Swift was put in play over 6 months ago when several unsolicited inquiries came your way and you hired J. P. Morgan to help review the company's "strategic and financial alternatives." What made the JBS-Friboi offer the most attractive? And what are the advantages to both organizations?

A: While I won’t comment on the specifics of the other bids, I will say that this was a very competitive process.

The JBS / Swift strategic combination benefits our stakeholders – to include cattle producers and feedlot operators – in many ways:

The combination maintains a competitive U.S. and Australian meatpacking sector without further consolidation. Producers and feedlot operators will continue to sell cattle in a competitive marketplace.

Our prospective owners intend to maintain and grow the existing strong Swift business. JBS has a strong track record of growing businesses and is committed to using Swift’s valuable assets -- industry leading U.S. pork and Australian beef operations and a dramatically improved U.S. beef business -- to enhance its global presence.

Our prospective new owners are focused meat processors as compared to diversified conglomerate operators or financial managers. JBS has a 54 year family legacy in meat processing that has led to the creation of Brazil’s largest beef company. Their expertise will build upon Swift’s tradition of quality and innovation that dates back to 1855, creating stability for our communities and business partners.

The combined company has great operational and financial strength. JBS / Swift will become the world’s number one beef processor with operations on three continents and the ability to serve customers worldwide. The addition of JBS’ operations brings enhanced diversification to Swift’s existing business and creates a new company with improved profitability and balance sheet strength.

Q: There are governmental hurdles to leap before the deal is final and one of the major issues will be that of growing consolidation. Industry consultant John Nalivka in a recent Denver Post story said, "We've been consolidating for 25 years, but it was always one U.S. packer buying a U.S. packer. Now, we have another global player buying into a U.S. packer. I think the fringe cattlemen's groups will jump into this. There will definitely be comments made about a foreign company owning an American cattle company." How will you deal with that problem and are there other issues that might be a factor in the finalization of the deal?

A: Considering the other possible deal outcomes, the JBS / Swift transaction is a great deal for cattle producers and feedlot operators – period.

Q: There are two parts of the Swift business – beef and pork. Will they both remain in the new organization or, as some analysts have suggested, will pork be divested?

A: At this time we have no reason to believe that Swift would lose any of its organizational identity – to include our outstanding pork processing business.

Q: The Swift/JBS-Friboi beef business will be larger by a long shot – approximately 25-30% larger in slaughter capacity than current leader Tyson. What world markets do you expect will take that kind of volume and how will you develop those markets?

A: The market is already taking that volume. JBS is over 60% export oriented, AMH is about 80% export, and Swift N. America is poised to go after Asian markets once they are fully open. The upside we have with this merger is a tremendous cross-selling opportunity to meet the specific protein needs of customers throughout the world. Swift has sales offices in Mexico and throughout Asia, while JBS-Friboi has offices in Russia, Europe and the Middle East. We are very complementary.