Tyson paying $2.16B for West Chester-based Keystone Foods, inventor of chicken nuggets

American food giant Tyson Foods is purchasing Philadelphia-area Keystone Foods for $2.16 billion, Tyson confirmed.

Tyson is buying the West Chester-based Keystone Foods from a Brazilian firm for cash and debt. Keystone supplies chicken nuggets, wings, and tenders; beef patties; and breaded fish fillets through six processing plants in the United States, along with eight plants and three innovation centers in China, South Korea, Malaysia, Thailand, and Australia.

"Keystone is a leading global protein company and will be a great addition to Tyson Foods," Tom Hayes, CEO of Tyson Foods, said in a statement. "Keystone provides a significant foundation for international growth with its in-country operations, sales, and distribution network in high-growth markets in the Asia Pacific region as well as exports to key markets in Europe, the Middle East, and Africa."

Under Hayes, Tyson has been trying to expand its range of prepared-foods offerings. The Keystone deal comes at a time when U.S. producers are grappling with weakening meat prices amid higher supplies and import tariffs imposed by China and Mexico in retaliation against U.S. duties on metal shipments.

"We're seeing so much consolidation in the food industry that it's easier for these companies like Tyson Foods to call on clients — food service or supermarkets — and say 'we have everything you need,' any way to reduce time, without talking to multiple sales people, the better. There are economies of scale from merging functions of the firm," said John Stanton, professor of food marketing at St. Joseph's University in Philadelphia. "We're seeing the same thing with consolidation in the pork industry," he added.

Besides Tyson, Keystone attracted bids from Cargill Inc., China's Cofco Ltd., and an unidentified Japanese firm, two people with direct knowledge of the matter said in June. George's Inc. — a family-owned chicken producer based in Springdale, Ark. — also presented a binding offer.

The seller, Brazilian meatpacker Marfrig Global Foods, acquired Keystone Foods for $1.26 billion in 2010, aiming to increase its presence as a supplier to restaurant chains. Keystone was, at the time, the largest privately held meat-products company in the U.S. and pioneer of the boneless chicken nugget.

"During this period, we added value, increased profitability, and adequately served our clients, all of which is reflected in the current selling price," Marcos Molina, chairman and controlling shareholder of Marfrig, said in a statement.

Keystone's legendary founder, Herb Lotman, the self-described "West Philly butcher boy," built Keystone Foods (first in South Philly, later in the western suburbs) into a major McDonald's supplier and the developer of the Chicken McNugget.

According to National Provisioner, a trade publication, Lotman began his career with his family's wholesale beef business. In the 1960s, Lotman and his partners pioneered cryogenics for McDonald's and developed a mass-production system for the manufacture of frozen hamburgers. Keystone Foods also developed and provided the first total-distribution concept in the McDonald's system to help it manage its supply chain more effectively.

Lotman and his private-equity partner Lindsay Greenberg LLC sold the business to Marfrig in 2010.

Under its Brazilian owners, Keystone shut its Conshohocken office and consolidated headquarter operations to its lab site in West Chester. Lotman died in 2014.

Keystone Foods grew into a multinational fast-food and sandwich-meat supplier, and in 2015 hired Devin Cole as its new president for North America, overseeing bird-, beef-, and fish-meat supply businesses. Cole previously worked as chief commercial officer of chicken giant Tyson Foods.

Keystone now employs about 11,000 people worldwide, although the company didn't break out how many work in West Chester.

For the fiscal year ended June 30, the company posted annual sales of $2.5 billion and EBITDA, or earnings before interest, taxes, depreciation, and amortization, of $211 million, the Tyson statement said.

Tyson Foods closed Monday at $63.40, up $1, or 1.6 percent.

This article contains information from Bloomberg News.