Smithfield Foods officials have announced that the company has a non-binding memorandum of understanding to merge its primary European subsidiary with Campofrio Alimentacion, which is Spain's largest meat processor. In a news release, Smithfield reported that the process would be an "all-share deal" and it would create a company with annual revenue of about $3.12 billion (U.S.).

The move is considered a reflection of what is an increasingly difficult cost environment for meat producers and processors. While the merger is not complete,  the combined companies would have synergies in production, distribution, marketing and sourcing, and it would help both companies firms manage rising fuel and feed costs in Europe.

As reports, Smithfield's subsidiary, Paris-based Groupe Smithfield, is jointly controlled by the U.S. company and Oaktree Capital Partners. It has plants in Portugal, the Netherlands, Belgium and France. Smithfield already owned 24 percent of Campofrio. Its processing plants are in Portugal, Russia and Romania, turning out such processed pork items as ham, sausages and bacon.

Campofrio officials say they will issue stock to complete the deal, and the company's shareholders will control 51.5 percent of the merged company. Smithfield would own 36 percent of the combined entity.

Source: Smithfield Foods,