Little choice for XL Foods but to seek outside assistance

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As the shuttering of one of Canada's largest meat-packing plants dragged on amid an E. coli outbreak traced to tainted beef from the slaughterhouse, speculation about a management shakeup began to swirl in cattle country.

It was growing clearer by the week that Edmonton-based XL Foods, a privately held company, was going to need help to reopen its Lakeside beef-processing plant in Brooks, Alta., a massive facility it acquired, along with other assets, for $105.5-million plus interest only three years ago.

Unable to ship meat to the United States since Sept. 13 and with its licence to operate suspended on Sept. 27, XL's costs were mounting.

Co-CEOs and brothers Brian and Lee Nilsson had little choice but to seek outside management assistance and a possible buyer, said Martin Unrau, president of the Canadian Cattlemen's Association.

"There's been rumours around since the plant closed that somebody would come in and buy a share of a plant or manage it," Mr. Unrau, a cattle rancher in Manitoba. "When you get into that position and things drag out, it becomes quite difficult to pull out of it really quickly on your own."

The Nilsson brothers found a taker in JBS USA, a subsidiary of Brazil-based JBS S.A., a global meat-packing giant whose biggest shareholders are its founding family and the Brazilian government.

JBS USA agreed on Wednesday to take over management of the embattled Lakeside plant. It has also been given the exclusive option to buy XL's slaughterhouse, feedlot and farmland in Brooks, as well as the Canadian company's beef-packing operations in Calgary and the U.S.

If the purchase agreement goes ahead, JBS USA would pay $50-million (U.S.) in cash and $50-million in JBS S.A. shares. JBS USA spokesman Cameron Bruett said Thursday he expects the company will make a decision within six months.

The deal would give JBS a significant foothold in Canada. First, though, XL and JBS must gain clearance from the Canadian Food Inspection Agency to restart the Lakeside plant for beef shipments. The agency has finished the last stage of its review.

Federal Agriculture Minister Gerry Ritz is awaiting a report from the agency that will outline the next steps for the slaughterhouse.

XL's recalled beef products were exported to more than 20 countries, including the U.S., a major consumer of Canadian beef. At least 15 Canadians in four provinces became ill with E. coli O157:H7 after eating meat processed by the XL plant. The beef recall is the largest in Canadian history.

Talks between XL and JBS USA began a while ago, but Mr. Bruett would not reveal exactly when. Officials with the two companies are ironing out final details of the management takeover, Mr. Bruett said.

"Suffice it to say we're going to have ongoing discussions to make sure that the partnership is positive for both entities," he added. "We'll be hashing out all those details over the coming days to make sure we have a seamless transition and that we can get that plant operational as soon as possible."

The Nilsson brothers did not respond on Thursday to interview requests from The Globe.

In a statement Wednesday, Brian Nilsson said the management agreement with JBS is a "positive step to relicensing" the Lakeside plant.

Through their Edmonton-based company Nilsson Bros., the family operates numerous cattle auction markets in Western Canada and offers livestock financing and farm insurance. The brothers first ventured into the meat-packing business in 1997.

Doug O'Halloran, president of United Food and Commercial Workers Local 401, which represents Lakeside workers, expects union officials will meet with JBS early next week.

The workers were laid off recently and are eager to return to work. Cattle ranchers, too, are anxious to see the slaughterhouse reopened. Mr. Unrau said prices for some cattle have fallen between $80 and $100 a head.

"We're optimistic but. … They [JBS] got to come in here and they got to demonstrate that they can operate this plant efficiently and safely for food and workers," Mr. O'Halloran noted.

JBS USA has had its own E. coli problems. The U.S. Centers for Disease Control said JBS recalled 172,000 kilograms of beef products in the U.S. in 2009 because of E. coli 0157:H7. Seventeen people became sick, with two of them developing kidney failure.

The U.S. Department of Agriculture said the recall prompted JBS USA to re-examine its approach to food safety.

With a report from The Canadian Press