Dismantling of Farmland continues;
Smithfield buying pork business
By Patrick Duffey, writer-editor
USDA Rural Development
ike a cat unraveling a
big ball of yarn inch by
inch, once mighty
Farmland Industries
Inc., at Kansas City,
Mo., is being unraveled and dismantled.
Its operations are being sold to
satisfy an overwhelming debt load
that drove the agricultural supply and
meat-processing cooperative into
bankruptcy May 31, 2002. Although
it filed for Chapter 11 bankruptcy, or
corporate reorganization, the case
has been handled from the early
stages as a virtual Chapter 7, or asset
liquidation bankruptcy.
Observers note that Farmland’s
demise resulted from borrowing too
heavily to compete in too many capital
intensive businesses, expanding
too aggressively, building too many
projects and depending too heavily on
the fertilizer business when the fertilizer
industry was depressed. Thousands
of farmers are expected to lose
more than $700 million in equity or
investments.
Robert Terry, Farmland’s chief executive
officer, said that if the cooperative’s
reorganization plan is approved
by U.S. Bankruptcy Court Judge Jerry
Venters, Farmland could begin paying
claims by year’s end. Additional payments
would occur as the cooperative
sells more assets.
Bids have been offered in recent
months for Farmland’s primary fertilizer,
petroleum and meat-processing
facilities.
Cargill, Smithfield bid
for Farmland pork division
Competition developed between
Cargill and Smithfield Foods for the
pork division of Farmland Foods. Bidding
peaked in October and went to a
bankruptcy court auction. Smithfield
emerged as the winner.
Smithfield’s initial bid was $363.5
million, which triggered a hearing
before the Senate Judiciary Committee
due to concerns about concentration in
the meat-packing industry. But the deal
eventually was approved by the
antitrust division of the U.S. Justice
Department.
Cargill, which owns Excell Corporation,
a major pork processor in Illinois
and Iowa, entered the bidding
with a pre-auction cash offer of $385
million. Smithfield countered at the
auction, increased its cash bid to
$367.4 million for most of the assets,
agreed to honor Farmland’s pork-producer
contracts and assumed Farmland’s
$90 million pension plan obligation,
effectively boosting its offer to
$457.4 million.
Prior to the fall auction, Smithfield
sold its Canadian pork business to
Maple Leaf. It expected to net $200
million from the deal.
With the Farmland purchase,
Smithfield could become a $10 billion
food company that processes
nearly 30 percent of the nation’s pork
supply. Farmland Foods, which
ranked as the 6th largest pork processor,
has packaging and processing
plants in Iowa, Kansas, Nebraska, Illinois
and Massachusetts. The cooperative
processed more than 7 million
hogs per year and accumulated sales
of $1.8 billion last year.
The sale could become effective in
early November. The combination of
Tyson, Smithfield, Cargill and Swift
now dominate the meat processing
business.
Farmland’s beef processing operation,
Farmland National Beef, will
remain under producer control, as it
has been purchased by its former partner
in the operation, U.S. premium
Beef, a cooperative (see related story).
Fertilizer assets sold
Meanwhile, J.R. Simplot of Boise,
Idaho, has agreed to buy Farmland’s
interest in SF Phosphates, a Utah based
joint venture of the two companies.
Simplot will pay $64.5 million
plus the value of Farmland’s share of
cash and working capital. The assets
include a fertilizer plant at Rock
Springs, Wyo., a phosphate mine at
Vernal, Utah, and a 96 mile pipeline
connecting the two.
The deal is expected to close quickly
once it gets court approval, which was
anticipated in early November. The
assets were not included in Farmland’s
Chapter 11 restructuring.
Pegasus Partners II, a Greenwich,
Conn., investment firm, has offered
to buy Farmland’s petroleum refinery
and adjacent fertilizer plant at Coffeyville,
Kan. The deal would also
cover an old oil terminal at Phillipsburg,
Kan., and a three-state crude
oil gathering system and related
inventories required to operate the
facilities. The deal was valued at $281
million. The Coffeyville refinery sale
would be contingent on about $134
million being committed to bring the
plant into federal environmental
compliance.
Even after it disposes of these
assets, Farmland still has other holdings,
chief among them its grain joint
venture with Archer Daniels Midland.
In partnership with other cooperatives,
it also has interest in a pair of
joint ventures: Agrilliance LLC, an
agronomy marketing and sales affiliate
owned with CHS Inc. and Land
O’Lakes. The other venture is Land
O’Lakes/Farmland Feed.
In May, Farmland closed and sold
its catfish processing operation at
Eudora, Ark., for $200,000 to a group
of 60 farmers associated with Seacat.
No delivery rights were involved.
Farmland acquired the operation in
1998 when it purchased SF Services,
the Arkansas regional farm supply
cooperative.
U.S. Premium Beef seals purchase of Farmland National Beef
Farmland National Beef has been purchased by U.S.
Premium Beef (USPB), which had been Farmland
Industries’ partner in the operation and is a producerowned
cooperative of 1,850 cattle producers in 37
states. The purchase, valued at $232 million, was
approved by the federal bankruptcy court in St. Louis
on July 15, and the sale was completed Aug. 6.
USPB is now majority
owner of Farmland National
Beef, which will be
renamed National Beef
Packing Co. LLC (NBP). It is
the nation’s fourth largest
beef packer, with about 10 percent of the national beef
market. It processes about 3.2 million head of cattle
annually.
Minority investors are an NBP management group and
NBP Co. Holdings LLC, a South Dakota company managed
by Beef Products Inc. (BPI).
“This is an excellent opportunity for additional growth
in the market for USPB stockholders and members,” says
USPB Chief Executive Officer Steve Hunt. “Increasing the
synergies that already exist between our companies will
enable NBP to become even more efficient in processing
and marketing high-quality beef products worldwide.”
The sale includes Farmland National Beef packing
plants in Liberal and Dodge City Kan., as well as furtherprocessing
facilities in Hummels Wharf, Pa., Moultrie,
Ga., and the Kansas City Steak Co., Kansas City, Kan.
National Beef also owns National Carriers, a 700-unit
refrigerated trucking operation.
“Having NBP’s management
group as minority
owners solidifies their
commitment to making
NBP the industry leader in
terms of product quality as
well as plant operating efficiency,” Hunt said. “Likewise,
IBP, as the world’s leading manufacturer of boneless lean
beef, has a long history of dedication to quality, food safety
and operational efficiency.”
USPB member cattle are marketed under the U.S. Premium
beef brand and numerous NBP product lines,
including Farmland Black Angus Beef, Farmland Certified
Premium Beef, Black Canyon Agnus Beef and Certified
Angus Beef. Member cattle are also marketed direct to
consumers through Kansas City Steak Co, NBP’s quality
steak mail-order business.
