Smithfield Foods Inc., already the world's largest pork processor, may now be the world's largest pork producer.

Smithfield announced Feb. 25 that it is buying Carroll's Foods Inc., the nation's second largest hog production company with 180,000 sows. The purchase was for approximately $500 million, consisting of 3.3 million shares of Smithfield Foods common stock, $178 million in cash and the assumption of approximately $216 million of debt.

Smithfield, based in Smithfield, VA, controls about 20% of the U.S. hog slaughter capacity (see page 15) and in recent years purchased controlling interests in meat processors in France and Canada.

Smithfield already had a strong presence in production before the Carroll's purchase, with some 165,000 sows. In December, Smithfield reported an 86% interest in Brown's of Carolina, a 50% interest in Smithfield-Carroll's (a joint production arrangement) and a 77% interest in Circle Four, the Utah-based production unit.

This winter, Smithfield purchased Western Pork Production Corp., a 12,000-sow unit near Yuma, CO. With these purchases, Smithfield may have surpassed Rose Hill, NC-based Murphy Family Farms' estimated 340,000 sows.

With the Carroll's acquisition, Smithfield has taken a major step toward achieving its long-term strategic goal of becoming a more vertically integrated company, says Joseph W. Luter, III, Smithfield Chairman and CEO.

"This acquisition will accomplish in one transaction what the company had otherwise hoped to achieve in added hog production over the next five to 10 years, assuming such production could even be added given the current political and environmental climate in existence today," says Luter. Smithfield approximates its level of integration at 27%, up from 11% before the Carroll's purchase.

Carroll's is headquartered in Warsaw, NC. O.S. Carroll started the company in 1939 with the purchase of a feed mill and feeding the mill's byproducts to 200 hogs on dirt lots nearby.

Ever since Carroll's daughter, Joyce Matthews, death about two years ago, rumors of Carroll's sale persisted. Carroll's has about 2,700 employees and about 600 contract growers.

Carroll's CEO F.J. "Sonny" Faison says the deal should have no effect on contract growers. "All the contracts will be assumed. This deal should give our growers some market stability," he says.

Faison says his company was not forced into the deal by the turmoil in the live hog market. "We still had a very, very adequate net worth. We got over $500 million for the company and only $216 million of that was for debt," says Faison. But he adds that 1998 was the first losing year Carroll's Foods ever had and that the losses suffered were extreme. "But that did not lead to this negotiation. These talks have been ongoing. We've had a long-term strategic plan to be an integrated company," Faison says.

In addition to the Smithfield-Carroll's joint venture and Circle Four, the two companies had partnered in the ownership of the exclusive U.S. rights to the NPD line of genetics.

Carroll's is also one of the largest poultry production companies and co-owner of Carolina Turkey, the largest turkey processing plant in the world.