Tyson stocks tumble 8.56%
Posted on Friday, September 5, 2008
Tyson Foods Inc. stocks plunged Thursday after the company said it would offer 20 million more Class A shares and $ 450 million in notes payable in 2013.
Class A company stock closed at $ 13. 88, down $ 1. 30, or 8. 56 percent, in trading on the New York Stock Exchange. It has traded as high as $ 20. 49 and as low as $ 12. 81 in the past year.
An entity controlled by Don Tyson, the company’s former chairman and current director, has indicated it intends to buy 3 million shares of the newly available stock, according to a Thursday news release. Tyson Foods has a dual-class stock structure that gives a 10-1 voting advantage to the Class B shares owned by Don Tyson and his family partnership.
Along with the stock, the company is offering $ 450 million in convertible senior notes that mature in 2013, so the debt could be paid back in cash and stock depending on the value of the stock at the time of maturity, according to the documents filed by Tyson with the Securities and Exchange Commission on Thursday.
Tyson spokesman Gary Mickelson said the company would not comment beyond the release and the SEC document statements.
Proceeds from the stock sale and notes will repay some of the outstanding company loans and possibly fund acquisitions, the news release states.
Morningstar analyst Ann Gilpin said the stock offering dilutes the value of outstanding shares and drives down the price.
“They are offering more shares and taking on more debt. The notes wouldn’t matter that much except that they are convertible. They have the potential to further dilute the stock,” Gilpin said Thursday.
Additional stock offerings are not a good sign for Tyson, Gilpin said, but indicate the problems in the protein markets right now.
“They can’t raise prices fast enough or far enough to cover the costs of production. They have to raise capital to keep the cash flow going,” she said. “This company isn’t healthy enough to generate the cash on its own.”
Grain prices have increased, in part, with federal subsidies to expand the ethanol industry. Corn futures topped $ 7 a bushel for the first time ever in June on the Chicago Board of Trade when Midwest farmland was flooded after heavy rains.
Tyson reported in July that third-quarter earnings were down more than 90 percent from the previous year. The company cited losses in its chicken business due to high feed prices.
It had net income of $ 9 million for the quarter that ended June 28, down from $ 111 million for the same period a year ago.
Revenue for the quarter totaled $ 6. 85 billion, up from $ 6. 62 billion a year earlier.
Most protein industry companies are in the same financial situation, Gilpin said.
Stephens Inc. analyst Farha Aslam said in a note to investors Thursday that the expected $ 700 million to $ 800 million Tyson raises from the offerings would go toward funding international acquisitions in China, Brazil, Mexico and India. Some money might also go to development of alternative fuels. She said the offering would dilute the company’s fiscal 2009 earnings about 5 cents-10 cents a share.
Tyson has already started global acquisitions and fuel development.
Tyson bought Jiangsu Jinghai Poultry Industry Group Co. Ltd., a Chinese poultry breeder, to create a new company called Jiangsu Tyson Foods. Tyson holds a 70 percent stake in the new venture, which will start processing 400, 000 birds a week next year. Tyson confirmed in May that it had bought 51 percent of Godrej Foods Ltd., based in Bombay, India. The resulting venture — Godrej Tyson Foods — will sell poultry to retailers and restaurants in western, southern and northern India. Tyson has also entered into a joint venture with Syntroleum Corp. of Tulsa to turn low-grade fats into synthetic fuel. The venture is called Dynamic Fuels LLC. The partners intend to begin construction of a plant at Geismar, La., this fall and expect to complete it before the end of 2009. The plant is expected to produce 75 million gallons of fuel a year when in full operation. Tyson also is partnering with ConocoPhillips Co. of Houston to produce diesel fuel in Borger, Texas, from fats shipped from Tyson’s Amarillo beef plant.
To contact this reporter: sroberts@arkansasonline. com
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