Farmland Industries has reached an agreement to sell it Farmland Foods unit to Smithfield Foods for approximately $363.5 million. Smithfield will acquire substantially all of the assets, and certain liabilities, of Farmland’s pork production and processing business.

Farmland and the Official Committees chose Smithfield over other potential buyers, and after also giving careful consideration to the alternative of reorganizing the company around Farmland Foods. The Smithfield transaction provides the greatest opportunity to generate the highest available value to creditors, in addition to offering security and stability to the employees, independent pork producers, customers and communities of Farmland Foods.

Specifically, the transaction between Farmland and Smithfield:

  • Honors all current Farmland Foods pork production contracts giving Farmland’s independent pork producers the certainty and security of contractual supply relationships. Smithfield and Farmland Foods also will remain committed to purchasing significant numbers of hogs on the open market;
  • Preserves the jobs of Farmland Foods’ 6,100 employees;
  • Recognizes the UFCW at all of Farmland’s unionized facilities;
  • Ensures all Farmland Foods’ production facilities remain open and in operation at current production levels, and that all Farmland customers will continue to be served without interruption;
  • Keeps Farmland Foods as a stand-alone business operated by its current management, with the same entrepreneurial independence that Smithfield encourages in all of its businesses. George H. Richter will continue as president and chief operating officer of Farmland Foods;
  • The current Farmland Foods management team and headquarters employees will remain based in Kansas City;
  • Preserves and invests in the Farmland brand;
  • Maintains healthy competition in the pork industry. Smithfield’s share of the pork industry when combined with Farmland’s will be approximately 27 percent, substantially lower than some companies’ market shares in the poultry and beef industries; and
  • Provides Farmland’s independent producers, employees, customers, and communities with the comfort of knowing that Farmland Foods is financially strong.

In addition, Smithfield has offered to assume the Farmland Foods pension plan.

The agreement is subject to customary Bankruptcy Court approval of Smithfield as a "stalking horse" bidder in a competitive auction process, customary regulatory approvals, including clearance under antitrust rules, and other customary closing conditions.

Pending approvals, the sale is expected to be completed in approximately 75 days, unless a higher offer is received.

In addition, it looks like the sale could face the scrutiny of Attorney General John Ashcroft at the urging of Iowa Sen. Charles Grassley. During a news conference, Grassley said, "I think this acquisition could have a very serious impact on family farmers and independent producers. Smithfield has no appreciation for family farmers whatsoever."

When asked what Ashcroft could do if the purchase doesn't reach market concentration levels that would trigger antitrust laws, Grassley conceded "there's not much recourse for a senator."

Smithfield Foods, Farmland Foods