The Company also announces that it has entered into separate non-binding letters of intent to acquire Pine Ridge Farms, LLC and Kansas City Sausage Company, LLC. It is expected that the combined businesses will add over $180 million of annualized revenue and over $13 million of EBITDA to the Company's results. These acquisitions represent AgFeed's entry into the harvest and processing segment of the pork business and will provide the base of human resources necessary to expand this business and develop this segment of our business as an adjunct to the western-style hog farms under development in China. This processing capability is the necessary precursor to the Company's global market strategy.
"Our vision is to align global production resources to supply safe pork and pork products to the consumer through our branded pork processor customers. These executive changes and acquisition opportunities represent the natural progression of the strategic direction initiated during the spring of 2010, and first fully visible through the acquisition of M2P2, to develop an integrated, controlled, production system that would allow us to capture earnings throughout the international hog/pork production process."
Our team of hog production professionals that were deployed in the past months to focus on turning around our legacy Chinese hog production system has made significant strides in closing and liquidating facilities that could not meet our standard production metrics while at the same time moving rapidly to bring appropriate operating discipline to the remaining legacy assets. This work is not yet complete. However, we expect that we can return the legacy system to profitability later this year. The performance of our animal nutrition unit was disappointing. The size of the nation-wide Chinese hog herd is down which has impacted demand for our nutrition products. More importantly we were unable to pass along the rapidly increasing cost of grains in real time.
AgFeed's Board of Directors, recognizing the weak performance of the Company's existing Chinese hog production system and the extreme operating conditions that the Company has experienced during 2010 has conducted a full review of its established Chinese hog production system, the farms acquired during 2007 and 2008, in connection with the preparation of its financial statements for the period ending September 30, 2010. This review has resulted in a number of actions regarding the management and organization of the business and has caused the board to reach the conclusion that while this existing production system can be operated profitably it cannot sustain a high enough level of profitability to support the original acquisition values of these assets and the resulting goodwill. As a result a determination has been made to write down the value of the intangible assets related to this production system by approximately $16.8 million. In connection with the acquisition of M2P2 AgFeed has changed significantly from a company focused on China to an international company presented with global growth opportunities. AgFeed's board appreciates that these opportunities bring with them high performance standards regarding, improving and growing earnings and cash flow and building long term value for the Company's shareholders.
AgFeed Industries announced that its wholly owned subsidiary, AgFeed Animal Nutrition Holdings (AANI), has filed a registration statement on Form F-1 with the U.S. Securities and Exchange Commission for a proposed IPO of its Class A ordinary shares. Rodman & Renshaw LLC will act as the underwriter for the IPO.
"We believe that the carve out of AANI will be a positive development for our shareholders and for the business prospects of AANI. Establishing a public market for AANI will provide an independent valuation of one of our business units that we feel has been overlooked by the market, thus unlocking value for AgFeed's shareholders. As a public company in its own right, AANI will have a sharp strategic focus and will have independent access to both debt and equity capital to support its pursuit of a myriad of growth opportunities."
"The acquisition of M2P2 presented AgFeed with an unique and compelling opportunity to add a significant and profitable operation on a fair and favorable basis as measured by M2P2's book value, profitability and cash flow. AgFeed's revenue base will nearly double in connection with this acquisition."
During the second quarter the Company faced an extremely difficult operating environment as a result of a series of severe floods throughout its area of operations. The floods led to significant operating disruptions on the Company's farms and on the transportation infrastructure supporting the operations. The movement of feed and live animals was severely disrupted. These factors led to the loss of over 16,000 live animals in addition to the planned culling of 3,000 sows.
"We are still in the process of repairing the infrastructure damaged in and around our facilities in Fujian, Jiangxi and Hainan. I have been very proud of our team and the way that they have rallied to answer the challenge faced by our Company and nation. The domestic inventory of hogs has changed dramatically and we are already seeing a rapid rise in market prices. We are optimistic about our operating performance for the balance of the year."
During the quarter, the average hog price was 11% less than the first quarter of last year. Many of our customers are struggling to withstand the combined challenge of low hog prices and increased feed prices due to the high cost of corn. In order to support our animal nutrition customers and cement our market position, AgFeed has chosen to exploit its relative financial strength by extending payment terms to its customers.
AgFeed Industries today announced that it has agreed to invest in a hog production project in conjunction with Xinyu City in Jiangxi province. The two-year project encompasses the building of 5 western model hog farms, totaling 25,000 sows. The initial phase of the project will encompass an investment of $18 million to build two 5,000 head sow farms, one 200 head boar stud farm and one 2,600 head multiplier facility. Upon completion the first phase of this complex shall have an annual hog production capacity approaching 230,000. Construction for the initial phase will begin in May 2010, with the goal of completing the second phase during 2012. The Xinyu complex will have annual production capacity of up to 600,000 hogs. This project is similar to our project in DaHua, Guangxi Province, where construction began in November 2009. Together our Xinyu and DaHua complexes will have the capacity to produce over 800,000 top line hogs a year.
Both of the strategic joint ventures which we entered into during 2009 have already shown their impact. Working with Hypor on animal genetics and M2P2 on farm operations has already resulted in an increase in births/sow on our established farms from 17.1 to 17.6. By 2011 we expect to achieve birth rates of 18.2. The average in China is approximately 16. On our western style farms, which are now under construction, we anticipated yields of 22-24. We also expect to increase our sow base to approximately 40,000 this year and to 60,000 by 2011. This sow base will allow for production of approximately 1,250,000 hogs in 2011.