Perdue Farms Inc., the nation's fourth-largest chicken processor, is engaged in merger talks with Showell Farms Inc., one of its oldest and closest competitors.
Officials in both Maryland-based companies yesterday described the talks as preliminary, but insiders and industry analysts said a merger would make sense.
And if the companies merge, it may set off a wave of consolidation among poultry processors, some predicted.
Perdue Chairman James A. Perdue said in a prepared statement that he has long known the Guerrieri family, which founded and runs Showell Farms near the Perdue operation.
Perdue Farms, started in 1920 by Frank Perdue, James Perdue's father, is based in Salisbury, just a few miles south of Showell, where the fourth generation of the Guerrieri family helps run a poultry business established in 1908.
Because both companies produce and sell chickens primarily on the East Coast, "It would be an ideal marriage for us both," James Perdue said.
Michael Guerrieri, whose great-grandmother founded a live chicken market in New York City, said there's been a trend
toward mergers and consolidations in the poultry business in recent years.
But, he said, his family has only begun to explore the merger idea, and expected the talks to continue for several months.
"We each have our strengths and weaknesses," and managers of the two companies want to make sure the combined company would be stronger than the two separate companies, he said.
DMr. Guerrieri said his family does not feel pressured to sell out to a larger company. Showell, with its 4,800 employees and five plants, processes about three million chickens a week. It is less than half the size of Perdue, which has 13,800 employees at 10 plants and processes about 7.5 million chickens a week.
Both companies are privately held, and don't release financial information.
Mr. Guerrieri said Showell is profitable, and he and other family members want to remain involved in the business.
"I love the business. It is very exciting and challenging," he said.
Although no final agreement has been reached, the two sides have decided that any merger would not change operations at Showell.
If the two companies merge, Showell would operate as a separate division, retaining its "Cookin Good" brand, according to a statement released yesterday. In addition, Showell managers would continue to operate that company's five plants, with the same employees and and wage structure.
John Pederson, who writes a newsletter about the poultry industry, said Perdue Farms has been expanding its production and sales range by building new plants, but that buying up competitors is a less expensive method of expansion.
"Perdue wants to grow" and it especially wants to grow in one of Showell's strongest regions: Florida. "Florida is key," Mr. Pederson said.
Showell has sold chicken in Florida for 20 years. Perdue entered the market there in January.
If the two companies merge, Mr. Pederson predicted, other competitors will seek out acquisitions, and further consolidations will follow. "My guess is there will be others in the next six to nine months," he said.
John McMillin, a poultry industry analyst for Prudential Bache Securities in New York, said such mergers are increasingly common.
"It is happening across the food industry," he said. "It is very hard to be a small" player in a food industry increasingly dominated by giants such as Tyson Foods Inc., which sells almost eight times as much chicken as Showell, or ConAgra Inc., a $21 billion food conglomerate.
"They have either got to get bigger or sell out," Mr. McMillin said.
RULERS OF THE ROOST
Biggest chicken producers, 1993; in millions of chickens slaughtered weekly.
Company ... ... ... ... ...Chickens
Tyson Foods Inc. ... ... ... 26.50
Gold Kist Inc. ... ... .. .. 12.60
ConAgra Inc. ... ... ... ... 11.25
Perdue Farms Inc. ... ... .. 7.51
Pilgrim's Pride Corp. ... .. 7.50
Hudson Foods Inc. ... ... .. 4.35
Wayne Poultry Div. ... .. .. 4.03
Seaboard Farms Inc. ... ... 3.80
Showell Farms Inc. ... .. .. 2.78
Townsends Inc. ... ... ... .. 2.70