Swift plants for sale?
An AP article on 1/24 suggests that the December raids on Swift, while not the only cause, may be a factor in Swift reportedly trying to sell its assets. I am running on speculation here, but is appears that – perhaps – the use of illegal workers allowed Swift to keep its labor costs down, and now without access to this labor, the economics of its plants deteriorated.
I have previously posted a Wall Street Journal article on this month on how labor costs in a chicken processing plant in Georgia rose after a raid and a shift to American workers.
My guess is that the use of illegal workers saves the employer at least 30% in labor costs. That savings can make an otherwise unprofitable business to be viable – so long as the cost of labor stays down.
Thanks to The Immigration News Blog for clueing my into follow up stories about Swift.
Swift Exploring Future Sale
By SANDY SHORE AP Business Writer
© 2007 The Associated Press
DENVER — Swift & Co., one of the nation’s largest meatpacking processors, may find it more lucrative to sell its assets separately instead of as a whole or testing the market with a stock offering, industry analysts said.
The privately held Swift, which was targeted by a wide-scale immigration raid last month, is looking into strategies ranging from refinancing to a sale or initial public offering, a decision executives said was made after they received some unsolicited inquiries over the past six months.
With beef and pork processing plants in six states and an operation in Australia, Swift may find buyers more interested in pieces rather than the whole company, the analysts said Tuesday.
“I think the owners came to the realization that their options for selling the company were getting more and more limited,” said Steve Kay, editor and publisher of the trade publication Cattle Buyers Weekly. “I believe it will be extremely difficult to sell it whole. They may find the component parts … might be worth more than the whole.”
The announcement, made Monday after the markets closed, comes as the nation’s meatpackers are recovering from a setback that occurred when key export markets were closed after the first U.S. case of mad cow disease was reported in December 2003.
Known medically as bovine spongiform encephalopathy, or BSE, the brain-wasting disorder infected more than 180,000 cows and was blamed for more than 150 human deaths during a European outbreak that peaked in 1993. Humans can get a related disease, variant Creutzfeldt-Jakob Disease, by eating meat contaminated with mad cow.
Swift said it has received a series of unsolicited inquiries from a number of third parties, and it has hired JPMorgan to help with the review of strategies. Swift said that there would be no additional comment and Swift spokesman Sean McHugh declined further comment Tuesday.
Federal immigration authorities rounded up 1,297 workers at Swift plants in Colorado, Minnesota, Iowa, Nebraska, Texas and Utah on Dec. 12. The company later said the raids could cost up to $30 million due to recruitment and training costs for new employees.
Last week, Swift laid off 58 employees, or about 10 percent of its corporate office staff, and said it took other cost-cutting steps to improve its competitive edge. The company said the actions were unrelated to the raids.
D.A. Davidson and Co. analyst Tim Ramey speculated that Swift may be facing some financial pressures as well as dealing with the aftermath of the Dec. 12 raids. “I think consolidation in this category would be a good thing,” Ramey said.
One potential buyer is meatpacker Smithfield Foods Inc. of Norfolk, Va., whose Chairman Joe Luter has indicated interest in Swift operations. A company spokesman did not return a telephone message left Tuesday seeking comment.
In a client note published Monday, Prudential analyst John McMillin said he was encouraged by reports that Smithfield was interested in some of Swift’s assets.
“Smithfield would likely be restricted for antitrust reasons from buying all of the pork processing division (three plants), but Swift’s $6 billion domestic beef division could be of interest,” McMillin wrote.
Based in Greeley, Swift’s majority shareholder is HM Capital Partners LLC and its investment partner is Booth Creek Management Corp. It has more than $9 billion in annual sales and a work force of 20,000 worldwide. It is privately held with publicly issued debt.