Tyson buys McNuggets maker Keystone in latest protein play

Published on .

Chicken McNuggets
Chicken McNuggets Credit: McDonald's

Tyson Foods is buying chicken-nugget maker Keystone Foods for $2.16 billion, giving the meat and poultry marketer even more access to the restaurant industry and a bigger international reach.

Keystone, which makes McDonald's Chicken McNuggets, among other products for fast-food chains, is being sold to Tyson by Brazil's Marfrig Global Foods.

Tyson knows the deal means that some key customers will now have even fewer suppliers of meat -- but that doesn't mean they should worry, according to Tyson CEO Tom Hayes.

The problems that arise from "concentrated" suppliers usually have to do with limited plants and supply chains in times of distress, Hayes said Monday on a call with analysts to discuss the deal. Customers that used to buy from both Tyson and Keystone but now will be dealing with the one combined company can rest assured, he said, because the acquisition will mean Tyson has an increased number of plants.

Hayes didn't provide details on how much overlap there is in the customer base between the companies.

Keystone supplies chicken, beef, fish and pork to some of the top fast feeders, as well as to retailers including convenience stores. Its products include chicken nuggets, wings and tenders; beef patties; and breaded fish fillets.

It's the latest in a series of deals for Tyson, which is trying to sharpen its focus on protein. Earlier this month, Tyson said it would sell its pizza crust business to an affiliate of private equity firm Peak Rock Capital. It sold its Sara Lee Frozen Bakery and Van's businesses to private equity firm Kohlberg & Co. And in June, it expanded its poultry lineup, buying organic chicken producer Tecumseh Poultry. Its recent investments include funding for smaller protein-focused companies, Beyond Meat and Memphis Meats.

In the Keystone deal, Tyson gets six processing plants and an innovation center in the United States and eight plants and three innovation centers in China, South Korea, Malaysia, Thailand and Australia. Tyson says the deal does not include a Keystone beef patty processing plant in Ohio. Keystone gets about 65 percent of its revenue from its U.S.-based production and the other 35 percent from Asia Pacific. Tyson wants to use Keystone's Asia Pacific exposure to grow there as well as in other international markets through exports, including Europe, the Middle East, and Africa.

Keystone's annual revenue in 2017 was about $2.5 billion. Tyson, with brands such as Tyson, Jimmy Dean, Hillshire Farm and Ball Park, posted sales of $38.26 billion in its fiscal year 2017, which ended Sept. 30, 2017.

McDonald's, the world's largest restaurant company, removed artificial preservatives from its Chicken McNuggets in 2016. McNuggets first hit the national McDonald's menu in 1983.

-- Ad Age with additional reporting by Bloomberg News

Most Popular