Bankrupt chicken producer Pilgrim's Pride Corp. (PGPDQ.PK) along with six of its subsidiaries, on Wednesday announced that they would file a joint plan of reorganization and disclosure statement under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy court.
According to the plan of reorganization, Pilgrim's Pride agreed to sell a 64% majority equity stake in the newly reorganized company to Brazilian beef exporter JBS SA.
The company anticipates exiting chapter 11 bankruptcy as a newly reorganized company in December 2009. However, the plan of reorganization is yet to be approved by the Bankruptcy court and are subject to further negotiations with stakeholders, and may be materially modified before approval.
In a statement, president and chief executive officer, Don Jackson said, "Over the past 10 months, we have fundamentally restructured Pilgrim's Pride as a market-driven company clearly focused on delivering the best service, selection and value to our customers as efficiently as possible. Thanks to the shared commitment and hard work of our employees, we believe that Pilgrim's Pride is positioned to emerge from bankruptcy as a stronger, more efficient competitor."
Under the plan of reorganization, Pilgrim's Pride would sell a 64% majority equity stake in the newly reorganized company to Brazilian beef exporter JBS SA, through its wholly owned subsidiary JBS USA Holdings, Inc., for $800 million in cash, representing an enterprise value of about $2.8 billion. The acquisition would give JBS a strong foot-hold into the U.S. food production industry. Pilgrim's Pride will use the proceeds from the equity sale to fund cash distributions to allowed claims under the plan, with all creditors of the Debtors holding allowed claims being paid in full, either in cash or by issuance of a new note.
The plan of reorganization would also see a precedent being set for bankrupt companies, whereby Pilgrim's Pride is expected to pay off its bankers as well as bond holders, as they would likely be paid in full. Further, there would also be money for the company's shareholders. Pilgrim's Pride's current market value is about $372 million as the stock closed Tuesday at $5.02. Pilgrim's Pride noted that if the plan of reorganization is approved by the Bankruptcy Court for the Northern District of Texas, it could emerge from bankruptcy protection by December 2009.
Meanwhile, pursuant to the 64% equity stake to JBS, all existing shareholders of Pilgrim's Pride would receive the same number of new common stock shares in aggregate, representing 36% of newly reorganized Pilgrim's Pride, while also canceling all existing Pilgrim's Pride common stock. Further, the plan also includes exit facility for senior secured financing in an aggregate principal amount of $1.75 billion to be provided by a group of lenders arranged by joint lead Arrangers CoBank, ACB and Rabobank.
Like most of its rivals in the poultry industry, Pilgrim's Pride has been struggling with high input costs, falling prices of chicken due to oversupply and weak demand from consumers amid the economic downturn. In addition, the company is overburdened with debt because of its $1.1 billion acquisition of smaller rival Gold Kist, Inc. in January 2007, even though the buyout helped it edge out rival Tyson Foods, Inc. (TSN) as the world's top chicken producer. At that time, Pilgrim's Pride also assumed $144 million of Gold Kist debt.
Pittsburg, Texas-based Pilgrim's Pride, one of the largest chicken companies in the U.S. and Mexico, filed a voluntary petition to restructure under Chapter 11 bankruptcy protection law on December 1, 2008, after recording a fiscal 2008 loss of almost $1 billion. Pilgrim's Pride was pushed into bankruptcy due to massive debts, slumping demand, weak market pricing, combined with high animal-feed prices. However, the company's operations in Mexico and certain operations in the U.S. were not included in the filing and continue to operate as usual outside of the Chapter 11 process.
The proposed combination of Pilgrim's Pride and JBS would pose new challenges to the global meat business, and become a new competitor for Tyson Foods, which is currently the only meat company in the U.S. that produces beef, chicken and pork. The combined company, with the addition of Pilgrim's Pride's chicken production, would also produce beef, chicken and pork in the U.S., making it a direct rival to Tyson Foods.
Pilgrim's Pride, a Fortune 500 company, controlled about 24% of the U.S. market, and employed about 48,000 people and operated 35 chicken processing plants and 11 prepared-foods facilities. During the first nine months into bankruptcy, Pilgrim's Pride closed seven processing complexes and two distribution centers, according to a filing with the Securities and Exchange Commission. It also reduced or consolidated production at other U.S. facilities. The company also expects to lose about 6,390 production positions and 440 non-production jobs.
Tyson Foods is the largest beef and second-largest pork processor in the U.S., while the JBS-Pilgrim's Pride combined company is seen to become the third-largest beef and third-largest pork processor in the U.S. Individually, JBS is currently the largest beef processor and exporter in the world.
Last year, Sao Paulo, Brazil-based JBS acquired Smithfield Beef, a unit of Smithfield Foods, Inc (SFD), and then canceled its $560 million acquisition of National Beef Packing Co. in February, after the deal was challenged on antitrust grounds by the Justice Department and 13 states. JBS also acquired Five Rivers Cattle Feeding to strengthen its beef platform and provide synergies to existing operations. The proposed JBS-Pilgrim's Pride deal could also attract scrutiny from antitrust enforcers, who keep a keen eye on competition in the agriculture business.
JBS first established its presence in the U.S. when it acquired the heavily indebted meatpacker Swift & Co. in 2007, which made JBS the world's largest beef producer. JBS' North America unit in its U.S. operations, JBS USA Holdings, has also filed with U.S. market regulators in July to make a $2 billion initial public offering.
For Pilgrim's Pride, Lazard acted as sole investment banker in connection with its financial restructuring and transaction with JBS, while CRG Partners Group, LLC acted as chief restructuring officer, and Baker & McKenzie LLP and Weil Gotshal & Manges LLP served as legal advisers. For JBS, Rothschild and Rabo Securities USA, Inc. acted as exclusive financial adviser and Shearman & Sterling LLP as its legal advisers.
In Wednesday's regular trading session, PGPDQ.PK is currently trading at $5.51, up $0.49 or 9.76% on a volume of 0.37 million shares. In the past 52-week period, the stock has been trading in a broad range of $0.14 to $12.94.
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