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Shuffling the deckchairs on the Titanic: E. coli-plagued Brooks packer handed off to Brazilian owned multinational

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The U.S. arm of a giant Brazilian beef-processing company announced yesterday it will immediately take over operations of XL Foods Ltd.'s troubled beef packing plant in southeastern Alberta, site of the continuing E. coli contamination crisis that has sparked the largest meat recall in Canadian history.

Catching most of agricultural Alberta by surprise, JBS USA said yesterday in a news release it had reached an agreement with XL Foods to manage the huge plant in the town of Brooks with an exclusive option to buy all Canadian and U.S. operations of XL Foods, which is a wholly owned subsidiary of privately held Nilsson Brothers Inc.

For its part, JBS USA, based in Greeley, Colo., is the wholly owned U.S. subsidiary of Sao Paulo-based JBS SA, the world's largest beef processor. While JBS SA is publicly traded, according to Forbes Magazine, the company is controlled by the patriarch and six siblings of the Batista family. Or, as Reuters News Service put it in 2009, the corporation is still a family affair.

It will likely take a few days at least before the implications of this deal are clear -- or even if it can be completed without approval of Canadian authorities. The question of the moment is this: Is the agreement what it appears to be or is someone just shuffling the deckchairs on the proverbial Titanic?

That isn't a bad analogy for a company that's pretty clearly too big to be allowed by either the Alberta or federal governments to fail. The social implications of a failure for the town of Brooks and the financial impact for the Alberta beef industry could be catastrophic.

JBS USA said in its news release it had agreed to pay $50 million US in cash and another $50 million in shares of its parent company, JBS SA, for the XL assets. "Under no scenario will JBS USA assume any of XL Foods' debt or liabilities," the release stated unequivocally.

Because of their privately held status, not much is known about the operations of XL Foods or its Edmonton-based parent company, which is owned by brothers Brian and Lee Nilsson.

However, as been reported here before, the holding company bought the then-existing assets of XL Foods in 1998 for $24 million and XL Foods in turn bought the Brooks plant in 2009 from Tyson Foods Inc. of Springdale, Ark., for $145 million US.

So on the face of it, if there isn't any more information forthcoming, owning XL Foods would appear not to have been a resounding success for the company's owners.

Notwithstanding JBS USA's interesting declaration, the question continues to be asked if XL Foods remains viable in the face of the likely costs associated with the closing and cleanup of the plant, the massive worldwide recall of products, insurance issues resulting from the E. coli contamination, potential class-action lawsuits and commitments in XL Foods' collective agreements with its workers.

In 2011, a Batista family member told Forbes the company wouldn't pass up a new acquisition if the "right opportunity" came along.

With the Nilsson Boys obviously anxious to unload their suddenly toxic property, possibly at fire sale prices, it looks like that's exactly what has come the Brazilian beef barons' way.

This post also appears on David Climenhaga's blog, Alberta Diary.

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