- The Washington Times - Monday, October 13, 2003

RICHMOND (AP) — Pork-processing giant Smithfield Foods Inc. said yesterday that it won the bidding in an auction for bankrupt Farmland Industries Inc.’s pork business.

As part of the agreement, Smithfield will pay $367.4 million in cash for almost all the assets of the Kansas City, Mo., company’s pork division, Farmland Foods. It will also assume $90 million in pension obligations, boosting the combined value of the bid to $457.4 million.

Smithfield rival Cargill Inc. of Minnetonka, Minn., earlier said it would pay $385 million for Farmland Foods, beating Smithfield’s initial offer of $363.5 million. During the auction Sunday, it essentially matched but would not top Smithfield’s final bid, said Mark Klein, a Cargill spokesman said. “We had to set our limits,” he said.

“Obviously, we are disappointed that we did not prevail in the auction,” said Bill Buckner, president of Excel Corp., Cargill’s meat-processing subsidiary.

Andrew Wolf, an analyst with BB&T; Capital Markets, said he had been somewhat concerned about prices escalating during a potential bidding war between Smithfield and Cargill. “It turned out there wasn’t [one],” he said.

If Smithfield receives U.S. Bankruptcy Court approval later this month, it expects to complete the purchase by early November.

In trading on the New York Stock Exchange, Smithfield shares rose $1.64, or 8.5 percent, to close at $20.85.

The auction took place at the headquarters of Farmland Industries, a large farmer-owned cooperative that filed for Chapter 11 bankruptcy protection in May last year.

The deal came despite complaints from Senate Finance Committee Chairman Charles E. Grassley, Iowa Republican, and Sen. Tim Johnson, South Dakota Democrat. They had asked antitrust regulators at the Justice Department to examine the sale, saying the government should prevent Smithfield, the nation’s largest pork processor, with $8 billion in annual sales, from grabbing an even larger chunk of the meat market.

Critics say a trend toward contracting between livestock raisers and big processors like Smithfield has been contributing to the ranks of independent farmers going out of business.

Farmers can sign agreements to raise animals for large companies like Smithfield and receive a guaranteed rate for livestock even when prices drop.

Those who do not sign contracts sometimes struggle to sell their animals to meatpackers because of competition with contract farmers. On the other hand, contract farmers could be left struggling if a large processor broke the agreement.

Last week, the Justice Department permitted the sale of Farmland, rejecting arguments that the company that buys it will get closer to monopolizing the pork business.

A Smithfield spokesman said the pork-processor’s market clout does not match the shares of players in comparable industries.

“We will have 27 percent of the hog-slaughter market,” spokesman Jerry Hostetter said. “There are companies in the chicken and beef industries that have larger shares.”

LOAD COMMENTS ()

 

Click to Read More

Click to Hide