December 9, 2009

 

Pilgrim's Pride shareholder balks at bankruptcy sale plan

 

 

A Pilgrim's Pride Corp. shareholder is challenging the chicken producer's plan to sell itself to Brazil's JBS SA saying the deal is unfair to the company's equity holders.

 

At a Tuesday hearing to consider confirmation of Pilgrim's Pride's bankruptcy-exit plan, an attorney for shareholder Black Horse Capital Management LLC said the plan favours members of the Pilgrim family, who control the company, over other stockholders.

 

Pilgrim's Pride is seeking to exit bankruptcy through the sale of 64percent of its new common stock to JBS for US$800 million. Current Pilgrim's Pride shareholders would own 36 percent of the reorganized company.

 

That plan allows JBS to acquire the remaining shares through a mandatory exchange of Pilgrim's Pride stock for JBS stock. That exchange offer could occur as soon as the first quarter of next year.

 

The short time frame for that exchange could have a "depressing effect" on the value of Pilgrim's Pride's stock because the shares would be sold before the company is "sufficiently far out of bankruptcy," Black Horse attorney Mark MacDonald said during a hearing held at the US Bankruptcy Court in Fort Worth, Texas.

 

Judge D. Michael Lynn ultimately will decide whether Pilgrim's Pride can execute the JBS sale and exit from Chapter 11 protection. The confirmation hearing hadn't concluded as of late Tuesday afternoon.

 

Black Horse, a holder of three million Pilgrim's Pride shares, said the mandatory exchange is designed to turn over 100percent of a reorganized Pilgrim's Pride to JBS, while existing stockholders likely will receive less than fair value for their shares.

 

MacDonald said the Pilgrim family, which owns the majority of the company's stock, will benefit from the plan through continued employment.

 

The Black Horse attorney pointed out that company founder Lonnie "Bo" Pilgrim is slated to collect US$7.5 million in fees over the next five years as a consultant to JBS. Senior Vice President Lonnie Ken Pilgrim would continue to draw a more than US$250,000 a year for his work at the company.

 

MacDonald said the US$7.5 million to be paid to "Bo" Pilgrim should be available to all shareholders.

 

A Pilgrim's Pride financial adviser said at the hearing that the Pilgrim's employment with the reorganized company is a continuation of their current roles and not compensation for their support of the JBS plan.

 

Despite Black Horse's protests, a majority of the company's shareholders supported the proposed plan, even when the Pilgrim's shares were excluded from the voting, a second expert testified.

 

Pilgrim's Pride's shareholders were the only class of stakeholders entitled to vote because all classes of creditors are slated to receive full cash payment and are deemed to accept the plan.

 

When Pilgrim's Pride filed for bankruptcy a year ago, the company "was not sure where the case was headed and what recoveries might be available for creditors," Pilgrim's Pride attorney Stephen A. Youngman said at the hearing.

 

"We're here today with a plan to pay all creditors in whole and provide a significant recovery for equity holders," said Youngman, a partner at Weil, Gotshal & Manges LLP.

 

Pilgrim's Pride, of Pittsburgh, Texas, filed for bankruptcy protection in December 2008, caught between contracts that locked it into high rates for feed and other commodities and falling prices for its products.

 

JBS came forward with its offer to take control of the company in September. The deal would continue the Brazilian beef producer's expansion in the US market. Pilgrim's Pride would be JBS' third significant US acquisition since 2007.