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. Last Updated: 07/27/2016

Merged Tyson, IBP to Dominate Local Market

U.S. poultry giant Tyson Foods has reached a $4.7 billion deal to acquire No. 1 meat producer IBP Inc. in a merger that would create a bird and beef powerhouse on the Russian market.

Tyson is estimated to hold up to 40 percent of the import market for chicken legs. IBP imports beef and pork and runs a sausage plant in the northwestern Moscow suburb of Tushino.

"By combining the No. 1 poultry company with the leader in beef and pork we are creating a unique company that has a major global presence," Tyson Foods president John Tyson said in a statement announcing the merger Jan. 1.

The agreement will form the world's largest meat producer with annual sales of $23 billion.

However, the deal is unlikely to lead to any major shake-ups in their respective activities in the Russian marketplace due to the companies' diversity, said Nikolai Shkolnikov, director general with Soyuzkontrakt, a leading company on the domestic poultry market.

"Tyson is itself a dominant player in the chicken legs segment," said Shkolnikov. "IBP is in a slightly different line of business. Besides, it is a lower-key player."

In the long run, the merger may result in synergy effects for both companies, said Kim Iskyan, retail and consumer goods analyst with Renaissance Capital. "The local food market will become more competitive," he said. "The acquisition is likely to create economies of scale."

The proposed takeover must still obtain the approval of U.S. antitrust regulatory authorities. If granted, the merger is expected to begin in the first quarter of this year, IBP said in a statement.

Tyson Foods rolled into the local chicken legs market in 1995 after three years of importing with Soyuzkontrakt, then the dominant company in the poultry market.

Its sales grew steadily until 1998, when imports dropped sharply in the wake of the 1998 ruble devaluation. The company then changed its strategy from direct sales to selling products free-on-board in sea ports.

By the end of last year, Tyson had managed to restore its lead as the largest seller of poultry in Russia by raising its market share to 30 percent to 40 percent, said Shkolnikov at Soyuzkontrakt.

Tyson officials were unavailable for comment Wednesday due to the holiday season.

IBP, which opened a Moscow office in December 1998, has two lines of business here: free-on-board sales of pork and beef and the manufacture of sausages at the Tushino plant.

IBP's local representative, Marina Dakhnova, said in a telephone interview Wednesday that business is booming.

"We have had two banner years in Russia," Dakhnova said, adding that figures would only be available by the end of January.

But Tyson remains to date the more dominant of the two companies in Russia. The firm is selling about 30,000 tons of chicken legs a month to the Commonwealth of Independent States, of which 20,000 to 22,000 tons are sold to Russia, according to Shkolnikov.

The firm also says it plans to produce 16,000 tons of poultry in 2001 at the Elinar-Broiler plant near Moscow. Tyson set up the plant with a group of other U.S. chicken producers and a Russian partner in 1999.

And its sales could well continue to soar. Official statistics show that demand for imported poultry is growing at a brisk pace after the sharp setback in 1998. Imports for the first 10 months of last year shot up to 504,300 tons compared with 236,000 tons for all of 1999, according to the State Customs Committee.

Industry insiders say the official figures account for just a fraction of actual imports due to a number of schemes used by traders to avert paying customs duties.

In the meantime, it could well be months before any effects of the merger by Tyson and IBP begin to trickle down onto the Russian market.

"It is yet premature to talk of any implications for our local operations," Dakhnova said.