July 16, 2003
Farmland To Sell Pork Business To Smithfield
Bankrupt Farmland Industries Inc. has agreed to sell its pork processing business - its remaining major business - to rival Smithfield Foods Inc. for $363.5 million, the companies announced Tuesday.
Kansas City-based Farmland, which filed for Chapter 11 bankruptcy protection in May 2002, had suggested previously that it might reorganize the company around its pork business, Farmland Foods. With annual sales of about $1.8 billion, Farmland Foods is the sixth largest pork producer in the US.
However, on Tuesday, Farmland announced it had agreed to sell the business, subject to court approval. Farmland also must allow other companies to bid on the business and hold an auction if other companies express interest.
Smithfield, Va.-based Smithfield Foods, the US's largest pork producer and processor, had expressed interest in buying Farmland Foods since Farmland Industries filed for bankruptcy protection.
Smithfield plans to continue operating all Farmland plants and maintain production levels at the plants. In addition, Smithfield would retain all Farmland Foods' employees, including the management team, and honor Farmland contracts with unions and hog producers.
"With the strong financial foundation of Smithfield, Farmland Foods would be well positioned to thrive and to continue supporting the many people and communities who have come to rely on it," Smithfield Chairman and Chief Executive Joseph W. Luter III said.
In early afternoon trading on the New York Stock Exchange, Smithfield shares rose 79 cents, or 3.5%, to $23.39 on volume of 872,600 compared with average daily volume of 476,223.
Farmland sold its crop production business to Wichita, Kan.-based Koch Nitrogen Co. for $293 million in May and has agreed to sell its interest in its beef processing business to its partner, U.S. Premium Beef, for $232 million.
"This is the last major core business," Farmland spokeswoman Sherlyn Manson said of Farmland Foods. Farmland's remaining assets include a refinery in Coffeyville, Kan., but Manson could not immediately say what the cooperative planned to do with the remaining assets.
In a statement, Farmland Industries President and Chief Executive Bob Terry said creditors have indicated their support of the agreement on the Farmland Foods pork business.
"Over the last six months, we have carefully reviewed all of the options for the Foods' business to determine the best course of action," Terry said. "This review has included consideration of retaining ownership and reorganizing around the Foods' business, entering into a joint venture with other industry participants, including producer groups, as well as the outright sale of the business. At the value we have achieved in this agreement, we believe this sales process will best address the interests of our creditors."
U.S. Bankruptcy Judge Jerry Venters must approve the bid and auction procedures for Farmland Foods and set a time to qualify other potential bidders.
Manson said the company plans to file an amended reorganization plan by the end of the month.