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Will Tyson Turn to Local Companies?

THE ANNOIJNCEMENT LAST week that Tyson Foods Inc. had offered to buy beef and pork producer IBP Inc. has muted -- but not completely silenced -- speculation that the aquisition-minded poultry giant might make a run on some neighbors.

One potential target, Simmons Foods Inc. of Siloam Springs, strongly denies any plan to be part of a national consolidation in the poultry industry. But both Simmons and Peterson Industries Inc. of Decatur are logical targets if the $4.2 billion acquisition of IBP doesn't satisfy Tyson Foods' need to grow.

Both privately held companies are part of a stagnant poultry industry that has been especially unkind to small and midsized concerns. Both underwent high-ranking personnel changes this year.

Add their 30-minute proximity to Tyson Foods in Springdale, strong hints that Tyson was back in acquisition mode and Tyson's "focus on feathers" after two years of divesting itself of non-poultry operations, and the leap to anticipating a buyout of either Simmons or Peterson was not a big one.

Tyson president and CEO John Tyson said in the summer of 1999 that the sale of the company's seafood division and the reduction of its debt from $1.9 billion after the acquisition of Hudson Foods to below $1.7 billion would "put us in position to be dangerous again and go get somebody."

When Tyson's fiscal year ended Sept.30, Tyson's long-term debt stood at $1.36 billion. The IBP offer, then, was surprising only in that it represented another foray into red meat.

After the Dec. 4 announcement, Tyson would not comment on the possibility of any future purchases.

Consolidating Industry

Some recent acquisitions within the poultry industry have some believing that another Tyson purchase will be made sooner rather than later.

Pilgrim's Pride Corp. of Pittsburg, Texas, announced in November that it was acquiring WLR Foods of Virginia in a cash merger valued at about $300 million. The acquisition will move Pilgrim's Pride, where Buddy Pilgrim. was once the chief operating officer, up the ladder from fifth- to second-largest chicken company in the nation.

In 1999, Poultry Magazine listed Tyson tops in the poultry industry in sales, with Simmons No. 17, George's Inc. of Springdale No. 22 and Peterson No. 29.

Ken Gassman Jr., senior vice president. of research for the investment brokerage house Davenport & Co. of Richmond, Va., said WLR probably did not fit into Tyson's plans.

Although WLR was the nation's 12thlargest chicken company, Gassman said, "[WLR was] too small to be a niche player in the chicken market, and they weren't large enough to be a Tyson or Perdue [Farms]. They were caught in the middle, and something had to happen. The more we looked at the situation, the more we felt that [WLR] probably had to be acquired."

Tyson's most fierce competitor -- in and out of court -- is ConAgra Foods Inc. of Omaha, Neb. On Nov. 11, ConAgra acquired Marburger Foods, a producer of pre-cooked bacon products.

However, analyst John Bierbusse of AG Edwards & Sons in St. Louis was not as certain that another acquisition is likely.

"[Tyson] doesn't need an acquisition," Bierbusse said. "They have plenty of internal business to take care of them for the foreseeable future."

The announcement of Tyson's possible acquisition of IBP comes less than a month after IBP began construction on a 85,000-SF, $25 million cooked meats plant in Council Bluffs, Iowa.

Simmons Says No

Three days before Tyson's announced its, offer to buy IBP, Poultry Magazine editor Tom Cosgrove said Tyson was in an "acquisition mode."

"In view of the fact that Pilgrim's Pride acquired WLR Foods and makes the company comparable now to Tyson in size, the acquisition and consolidation side of the industry seems to be heating up again," Cosgrove said. "It seems very likely to me that Tyson would be ready to do something again."

One industry official said Simmons could be in the most danger of any of the big four poultry companies based in northwest Arkansas.

Simmons, which employs more than 4,500, reportedly laid off 15-20 office personnel in November, although Buddy Pilgrim refused to verify that number. Simmons was last in the acquisition mode in 1982 when it purchased O'Brien Foods.

Simmons CEO Lindy "Buddy" Pilgrim, who came aboard in February, tried to quell any rumors of Simmons being purchased.

"Absolutely none," Pilgrim said. "Simmons is a family-owned business, and they intend to keep it a multi-generational family business."

Pilgrim noted that Tyson's recent acquisitions had not been local companies.

As for Peterson

Peterson also recently underwent changes in the front office. Peterson CEO Vic Evans, president of Decatur Bancshares and son-in-law of company founder Lloyd Peterson, recently left for the second time. Exiting with Evans was Dan Peterson, president and chief operating officer of Crystal Lake Foods Inc., a Peterson subsidiary that is also based in Decatur.

Vernon Austin is the acting president at Peterson, but he did not return a reporter's phone calls. Peterson recently' entered into a poultry management partnership with Wayne Farms of Gainesville, Ga.

Peterson employs more than 1,450 and operates its lone plant in Decatur. Lloyd Peterson is a longtime board member of J.B. Hunt Transport Services Inc.

Latest 'Storm' Won't Beat Simmons Farms, CEO Says

LINDY "BUDDY" PILGRIM, CEO of Simmons Foods Inc. of Siloam Springs, says all meat-producing companies are experiencing ups and downs. But Simmons, he says, is in no danger of being buried by the current downward trend.

The meat glut being experienced through the industry has taken its toll on a number of companies in 2000. But Pilgrim said his company was too strong to be beaten by the latest problem.

"There will be some companies that will not weather this cycle," Pilgrim said. "We will. The markets are weak right now. But we've got a good management team here. I'm pleased to be here because we've got a good future."

Pilgrim joined Simmons in February after serving as chief operating officer for Pilgrim's Pride Corp. in Texas.

He insisted that Simmons is financially strong and added that the company had weathered many ups and downs in its 51-year history.

"When times are tough, you batten down the hatches and weather the storm," Pilgrim said. "The chicken industry is a cyclical business."

Simmons Foods had $420 million in gross sales for 1999, up 5 percent from $400 million in 1998.

John Bierbusse, an analyst with AGEdwards & Sons in St. Louis, said small poultry companies could handle the problem by doing the same thing the big ones were doing about it.

"Suffer," Bierbusse said. "Or act rationally. Take your choince."

But when asked what route he believed most of the poultry companies had chosen, Bierbusse said, "Suffering."

The trouble started in the industry in 1999 when companies took their returns on profits from 1998 and put them into expansion.

"It's difficult to absorb such a big increase in expansion," Pilgrim said. "The industry's expansion increase was 6 percent in 1999 and will be about 5 percent in 2000. We really need to be growing about 2.5 or 3 percent in order to sustain profitability.

"We've already had a reduction in pullets as a whole. We can look out six months at any given time when the chickens are coming of age. And the spring of 1999 levels will be back by about April of 2001. There's going to be four or five more months of soft markets, then we should retain normal profit accessibility."
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Comment:Will Tyson Turn to Local Companies?
Publication:Arkansas Business
Article Type:Brief Article
Geographic Code:1USA
Date:Dec 11, 2000
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