U.S. Premium Beef offers to buy
Farmland share in processing business
or a while, it looked like
Farmland Industries Inc.,
the nation’s largest agricultural
cooperative,
might survive by selling
off all of its farm production supply
assets and concentrating on its successful
beef and pork processing enterprises.
Moving in that direction, it recently
sold its fertilizer operations to
Koch Nitrogen of Wichita, Kan., a
subsidiary of Koch Industries, in a
deal valued at $293 million. Farmland
is still seeking buyers for its petroleum
assets, including a refinery at Coffeyville,
Kan. The fertilizer deal
includes plants in four states plus terminals
in Minnesota, Iowa, Illinois,
Kansas and Texas. Also sold was its
half interest in Farmland MissChem
Ltd., which owns an ammonia plant
in the Republic of Trinidad and Tobago.
Completion of that sale and others
has enabled Farmland to cut its
bank debt from $330 million in May
2002 to less than $30 million, and it
posted a $29 million profit in its last
quarter.
Now U.S. Premium Beef, minority
cooperative partner in Farmland
National Beef, has offered to buy the
entire beef business from its partner for
$232 million in cash. When Farmland
National Beef (FNB) was formed in
1997, U.S. Premium Beef became its
minority cooperative partner, with a
29-percent interest held by its 1,850
cattle-producer owners from 37 states.
At the moment, it only has 10 employees.
But that could change if it becomes
sole owner. Farmland National Beef
has 6,200 employees.
“We are excited about the potential
purchase of Farmland Industries ’
interest in Farmland National Beef,”
U.S. Premium Beef CEO Steve Hunt
said in a press release, jointly issued
with Farmland. “While the beef processing
industry faces many challenges,
FNB has established a reputation for
successfully delivering consistently
high-quality beef products to consumers
in both domestic and international
markets.”
Farmland President and CEO Bob
Terry said the agreement to sell FNB
to its co-op partner “is fully supported
by Farmland’s Creditors’ Committees,
as we continue to maximize value for
the benefit of our creditors.” He called
FNB “a company with a strong balance
sheet and a history of success.”
The door was left ajar for others to
outbid the beef co-op’s offer by July 7.
If that occurs, a July 9 auction would
decide who is to be the future owner.
Larry Franzen, Farmland’s lead bankruptcy
attorney, indicated procedures
approved by the bankruptcy court
judge would require a minimum bid of
$239.5 million. If Farmland accepted
the larger bid, U.S. Premium Beef
would receive a breakup fee of $5 million
to $7 million. If that minorityowner
cooperative is unable to finance
its bid by the time the deal is ready to
close, it will forfeit its $5 million
deposit.
Franzen said 25 companies had
shown an interest in buying the beef
enterprise, but only three examined
its financial information. Court documents
are pending which will indicate
how much Farmland believes it
will be able to repay its unsecured
creditors.
Farmland National Beef processes
3.2 million head of cattle per year at its
five packing plants which supply packaged
beef for grocery meat cases.
Farmland’s part of the beef business
earned $5.8 million in the quarter ending
Feb. 28, down from $10.2 million a
year ago.
Farmland also is seeking buyers for
its separate pork processing operation.
Neither of the meat operations were
involved in the original bankruptcy
proceedings, although money from the
sale of them could help repay the unsecured
creditors.
And that line was just extended to
include former chief executives whose
golden retirement parachutes were
curtailed. The bankruptcy court
agreed with the cooperative’s new
administration and ruled their
promised exit premiums did not merit
separate consideration and they should
join the growing line of unsecured
creditors. Farmland’s report to the
bankruptcy court will show how much
it believes it will be able to repay its
unsecured creditors.
Judge Jerry Venters also told a company
that leased 100 barges to Farmland
in 1997 to take its $18 million
claim and join the other unsecured
creditors. The dispute centers around
Farmland’s half interest in Pinacle, a
partnership with River Barge and its
lender, CIT Group/Equipment
Financing, that leased the boats. Farmland
had agreed to take Pinacle’s place
in the deal if it failed to make a quarterly
payment. That occurred in July
2002 after Farmland had already
declared bankruptcy in May and
discontinued using the barges.
