Virginia-based Smithfield Foods yesterday announced that it has entered into a definitive asset purchase agreement with Farmland Industries under which Smithfield will acquire substantially all of the assets, and certain liabilities, of Farmland Foods, Farmland's pork production and processing business, for about $363.5 million in cash. \r\n\r\nThat's Smithfield's position. It sounds like a clean-cut sale. \r\n\r\nHowever, the various spins different players put on the transaction are really interesting.\r\n\r\nFarmland Industries says it signed an agreement for Smithfield to purchase Farmland Foods for $363.5 million in cash. Farmland adds the agreement is subject to court approval as a ""stalking horse"" bid. It will be the basis for an auction process involving parties interested in purchasing Farmland Foods. \r\n\r\nThat means Smithfield's $363.5 million will be the opening bid in an auction that Farmland Industries' bankruptcy court judge will hold in 45 days.\r\n\r\nFarmland deems outright sale best for stockholders\r\n\r\nFarmland Industries President and Chief Executive Officer Bob Terry says, ""Over the last six months, we have carefully reviewed all of the options for the Foods' business to determine the best course of action. This review has included consideration of:\r\n\r\nRetaining ownership and reorganizing around the Foods' business.\r\nEntering into a joint venture with other industry participants, including producer groups.\r\nOutright sale of the business. \r\n""At the value we have achieved in this agreement, we believe this sales process will best address the interests of our creditors,"" he adds. ""Both of the committees representing our creditors have indicated their full support of this agreement and the auction process.""\r\n\r\nA tradeoff existed\r\n\r\n""Retaining ownership and reorganizing around the Foods' business had potential to return more to stockholders over the long term,"" says Sherlyn Manson, Farmland corporate spokesperson. ""The out right sale gives stockholders more cash now. That's the tradeoff.""\r\n\r\nSuppose Farmland Industries stockholders could entice another qualified bidder to appear at the sale. A lively auction might occur. Smithfield's $363.5 million original ante might get upped. Farmland Industries' creditors and stockholders might get a bigger purse to divvy up.\r\n\r\nSmithfield committed to producers\r\n\r\n""We will honor all existing contracts producers have with Farmland,"" says Larry Pope, president and chief operating officer for Smithfield.\r\n\r\n""Smithfield supports family farmers,"" he declares. ""We're all in this together. We're on the pork producer's side. Smithfield is just as interested in higher hog prices as the next farmer. For the system to work, everyone has to make a little money.\r\n\r\n""We will continue to buy hogs from farmers,"" he adds. ""We will buy hogs from contract producers. Plus we'll buy hogs on the open market. We're committed to the industry. We're in pork production and processing for the long term.""Swine Times/John Otte
