Greeley meatpacker discloses plans for IPO

GREELEY– The crown jewel of Greeley’s economy has the potential to shine a little brighter with a planned public stock offering.

Without describing a timetable, S&C Holdco3 Inc., the corporate parent and holding company of Greeley-based Swift & Co., has announced its plans for an initial public stock offering.

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The IPO move would restore Swift to public ownership, something the company left behind in 2002, when Texas-based buyers acquired the beef, lamb and pork processing company from its parent, publicly held ConAgra Foods Inc. of Omaha, Neb.

The pending stock offer also would end widespread speculation and rumor regarding the possible sale of Swift to market rivals, including Smithfield Foods Inc. and Tyson Food Inc.

References to an IPO are contained in a filing that the holding company made to the U.S. Securities and Exchange Commission, describing a financial package that makes the offering possible.

“Going public will benefit the owners, who will receive their real market value and Swift & Company will become a Colorado-based, self-standing public company,´ said Danny Heron, Swift’s vice president and CFO. “The IPO gives Swift a source of liquid currency that allows us to enter the acquisition market without having to rely on the debt market. By acquisition we can expand the company and increase value for shareholders.”

Swift has previously raised money through debt offerings. The value of the would-be IPO was not disclosed.

The path toward the IPO is set forth partly in a complicated series of financial maneuvers that involve Swift’s owners and two California investment firms.

Swift’s owners, Hicks, Muse, Tate and Furst Inc., last month received a $178 million dividend from two Beverly Hills, Calif.-based hedge funds. Hedge funds are private, unregulated investment pools that use specialized techniques to invest in corporate equity markets. They differ from mutual funds, which are heavily regulated by the U.S. Securities and Exchange Commission.

The company said the money was garnered using “creative financing,” Swift’s top financial official said, comparing the unusual finance package to a homeowner’s decision to refinance a house and put the equity to work.

“This is an interesting deal with some creative financing,” Heron said. “It returns capital to the owners to strengthen an IPO.”

Hicks Muse has invested $190 million in total equity in Swift. Initially the Texas-based leveraged-buyout firm acquired a 51 percent stake of the company jointly with Booth Creek Management Inc. of Vail. In September the two firms spent $42 million to purchase the remaining 49 percent from ConAgra Foods Inc. The total equity of the two transactions was $230 million. Booth Creek has $40 million in equity in Swift.

In March Swift’s ownership sold $180 worth of bonds, which come due in 2010, to a group of institutional buyers. Under terms of the deal, a portion of the bonds could be converted into stock. Swift has agreed to pay interest on the bonds ranging from 10.25 percent to 11 percent.

One of the bondholders is Canyon Capital Advisors LLC. Canyon Capital said it invests in “undervalued financial obligations, including bank debt, high yield bonds, trade claims and equity securities.” The group’s Web site also says it specializes in convertible bonds. The two California funds together manage over $1 billion in equity assets.

“We became interested in the company because of its history and its management,´ said Michael Hooks, managing director of Black Canyon Capital LLC. “We took on the debt for Hicks Muse so they can put their money to work.”

The hedge fund has no interest in running the company or trying to overtake the management group, Hooks said, referring to recent examples of hedge funds running company CEOs out of town.

ConAgra sold Swift – its fresh beef, pork and lamb processing business – to Hicks Muse in Sept. 2002 for $1.4 billion. Since then the company has announced its plans to enter into the value-added meat market including products sold under the Swift name.

Swift has been hampered by the continued closure of the Canadian import market and the Pacific Rim export market in the wake of successive North American outbreaks of bovine spongiform encephalopathy, or mad cow disease.

In the company’s second quarter 2005 earnings statement it reported net sales of $2.6 billion, up 2.5 percent, or $63.2 million, from the same period one year ago.

In December, Swift laid off 800 employees of its Greeley packing plant, but recently re-hired 300 of them. The company cited growth in its value-added line as a reason for the rehire.

“The realignment of our first-processing capacity was a strategic move that gives us the platform to be a strong player in the value-added product market,´ said John N. Simons, president and CEO of Swift.

“The value-added product category has the greatest growth and profit potential in the beef industry, and we were excited to be able to create this opportunity without spending millions of dollars either to acquire capacity or to build it.”

Swift is the second-largest beef and pork processor in the world and reports say the company has recently been courted by other food manufacturers to sell.

News accounts describing Swift’s possible sale to Virginia-based Smithfield or Arkansas-based Tyson should subside with an IPO on the horizon, Heron said, adding that it was flattering “to be the pretty girl at the dance.”