Tyson Foods shares fall after stock, debt offering

CHICAGO (Reuters) - The shares of U.S. meat producer Tyson Foods Inc (TSN.N: Quote, Profile, Research, Stock Buzz) fell 8.5 percent to a 2-1/2 month low on Thursday after the company said it will sell stock and issue debt, a move analysts said highlights the difficulties meat companies are having paying bills.

After the stock market closed, Standard & Poor's cut its credit ratings on Tyson two notches to "BB", the second-highest junk rating, from "BBB-minus". The agency said it may cut Tyson's ratings again, citing rising commodity costs and a challenging economic environment.

Early on Thursday, Tyson said it will sell 20 million shares of common stock and issue $450 million in notes to pay debts and for such things as acquisitions, strategic investments and growing the business.

"The meat companies are scrambling for cash and this is a clear example of that," said Rich Nelson, an analyst with Allendale Inc.

Higher costs for feed and fuel have hurt meat companies, some of which have reported losses this year.

For its third quarter, which ended in June, Tyson reported a 92 percent drop in profit from a year earlier, including a $44 million loss in its chicken unit. The company also produces beef and pork, making it the largest U.S. meat producer.

Smithfield Foods Inc, the largest U.S. pork producer, in late June said it would issue $350 million in notes and sell 7 million shares, or 4.95 percent, of its common stock to the Chinese trading company COFCO.

"While the fund raise patently signals the difficulties being faced across Tyson's portfolio, a successful transaction would improve a balance sheet," Jonathan Feeney, food analyst with Wachovia Capital Markets, said in a note.

Paying down debt should be a priority for the money raised from the stock and debt offering, said Ann Gilpin, an analyst at Morningstar.

For the third fiscal quarter, ended June 28, Tyson had about $2.7 billion in long-term debt.

There was talk that Tyson may be looking to buy other businesses.

"After many years of talking about acquisitions, we think Tyson is ready to pull the trigger on a more consistent basis," Kenneth Zaslow, a food analyst at BMO Capital Markets, said in a note.

Tyson may be looking expand in India, China or Brazil, or increase its U.S. chicken business, he said.

Tyson shares closed down $1.30, or 8.56 percent, at $13.88 at the New York Stock Exchange on Thursday, their lowest since mid-June.

(Reporting by Bob Burgdorfer; Editing by Brian Moss and Andre Grenon)