Agribusiness  July 7, 2006

Business conditions slow Swift’s move toward IPO

GREELEY – In many respects, Swift & Co. walks like a public company and talks like a public company.

Because Swift has issued public debt, the Greeley-based meatpacker is required to post its quarterly and annual earnings reports – much as a company that issues equity or stock to shareholders.

Unlike the equity companies, Swift’s not subject to the buzz that follows share prices.

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“I’d say the difference is … we don’t have the daily, if not hourly, interest and view of our stock price,´ said Sean McHugh, Swift’s vice president of investor relations. “So, I would say our current debtholders have a different perspective than a public equity holder would.”

If that means Swift management is enveloped by a relative sense of serenity, it doesn’t mean it’s going to maintain the status quo.

Speculation has simmered about Swift’s intentions to truly “go public” with an initial public offering ever since its current ownership group acquired the business from ConAgra in 2002.

The ownership group, which includes HM Capital – the new name for the leveraged buyout firm Hicks, Muse, Tate & Furst Inc. – and Booth Creek Management, headed by former Vail Resorts magnate George N. Gillett, has never refuted the talk.

“An initial public offering would be a logical next step in the evolution of Swift,” McHugh said. “That’s just going back to the Business of Private Equity 101. They come in, make an investment, work to improve the underlying fundamentals and operations of the business, and at some point in the future we look to realize a return on that investment.”

Most likely, that offering is at least six months away, or longer.

Swift’s recent quarterly reports have shown a decline in revenues from the comparable quarters in 2005. And earnings before interest, taxes, depreciation and amortization, or EBITDA, slipped into negative territory in the latest quarter when Swift reported a $30 million loss.

Such numbers are likely to keep the company from approaching Wall Street any time soon, said Tim Ramey, vice president and senior research analyst for D.A. Davidson & Co. Ramey researches the food and beverage industry, and among the companies he follows regularly is one of Swift’s chief rivals in the meatpacking business, Smithfield Foods.

“The stock market would want to see a sustained improvement in profitability,” Ramey said, “at least a couple of quarters – two or three quarters – of sustained improvement.”

Exports could give a boost

The expected reopening of Japan’s borders to American beef could help with that cause, he said.

“Reopening all the export markets would be a big help for all the industry now. But we’re talking about an IPO environment. One of the big questions would be, what’s the overall shape of the protein business? Are we going to have another protein glut the next time H5N1 (avian flu) is in the news?”

Ramey thinks Wall Street is interested in the opportunity to invest in Swift. It’s a matter of when.

“All things in good time,” he said.

The cyclical nature of the beef business is something Swift will have to overcome before a public offering is launched, said Steve Kay, editor and publisher of Cattle Buyers Weekly.

“I remain pretty skeptical about the chances of taking Swift public,” Kay said.

He acknowledged that Swift’s current executive team, headed by CEO Sam Rovit, was put together to sell the company to Wall Street. But he emphasized that the company’s recent financial numbers will make it a difficult sell.

McHugh said a key to the timing of an IPO would be “the underlying fundamentals of the U.S. beef market. We’ve sort of struggled through a long period of very tough times.”

But conditions this summer are the best they’ve been “for quite some time,” he added. “So a prolonged, positive trajectory would certainly be helpful in moving us along that path toward an IPO. To be any more specific – to say it’s six months, it’s 18 months, it’s 24 months – that would be premature.”

If an IPO isn’t the ticket to bringing Swift into the publicly traded realm, maybe an outright sale to another public company will make it happen.

Smithfield’s interest in acquiring at least part of Swift has been the subject of much discussion in the meatpacking industry.

“I think it’s important to point out that Joe Luter, the chairman of Smithfield, openly and repeatedly said he was interested in acquiring Swift’s business,” Kay said.

But when Swift’s owners told Luter what their asking price would be, Luter “didn’t even make a counteroffer,” Kay said, relating a conversation he held with Luter.

GREELEY – In many respects, Swift & Co. walks like a public company and talks like a public company.

Because Swift has issued public debt, the Greeley-based meatpacker is required to post its quarterly and annual earnings reports – much as a company that issues equity or stock to shareholders.

Unlike the equity companies, Swift’s not subject to the buzz that follows share prices.

“I’d say the difference is … we don’t have the daily, if not hourly, interest and view of our stock price,´ said Sean McHugh, Swift’s vice president of investor relations. “So, I would say our current debtholders have a…

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