Tyson Foods’ pending acquisition of AdvancePierre hits a snag

Tyson Foods has been in the midst of a tender offer to acquire AdvancePierre since May 9, but a  group of shareholders balked at the notion of the $40.25 cash offer per share, and filed a civil claim against AdvancePierre seeking to block the deal.

The proposed class action suit was filed May 12, in the U.S. District Court for the Southern District of Ohio. Lead plaintiff is shareholder Stephen Bushansky who filed on behalf of others similarly situated. The plaintiff claims not all shareholders will benefit equally in this deal.

AdvancePierre made an agreement in July 2016 when the company went public that those who owned shares prior to the initial public offering (IPO) would be entitled to 85% of the relevant tax benefits that company would receive following the IPO. These payments would be accelerated into lump sum payments if the company were to be acquired. Court records indicate this amounts to about $200 million that will be paid to company insiders under the terms of the Tyson acquisition which was announced April 25. That deal is valued at $4.2 billion.

The filing states that “company insiders stand to reap a financial windfall for securing the deal with Tyson.” For instance AdvancePierre former CEO John Simmons Jr., is looking at around $60 million for his 1.483 million shares. In addition, Oaktree Holders, affiliated with Oaktree Capital Management via board members Stephen Kaplan, who is the former head of Oaktree’s Global Principal Group, Matthew Wilson, co-portfolio manager for Oaktree and Dean Hollis, a senior advisor to Oaktree, are also poised to benefit as AdvancePierre’s largest shareholder owning a cumulative 42% of the company.

The suit notes the proposed acquisition by Tyson “is the result of a truncated single-bidder process designed to benefit AdvancePierre’s management and largest stockholder, the Oaktree Holders. Despite having garnered interest from more than 30 parties in an outreach AdvancePierre conducted in 2015 prior to its IPO, “the Board failed to conduct even a limited market check before agreeing to the proposed (Tyson) deal.”

Tyson’s offer represented a 31.8% premium to AdvancePierre’s closing price on April 5, the most recent unaffected trading day, and a 41.6% premium to the company’s 60-day volume-weighted average trading price ending on April 5. Tyson’s tender offer is set to expire at midnight on June 6, unless the court blocks it sooner.

The filing states the AdvancePierre recommended to stockholders to tender their shares in favor of the acquisition also omitted material information, namely that executive officers were able to secure unique benefits for themselves which were not available to the public shareholders. Some of those benefits included golden parachutes if they are terminated post merger, as well as tax windfalls paid in lump sum payments.

Tyson Foods and AdvancePierre declined to comment on this case. The suit also said Tyson first met with board member Wilson, a principal at Oaktree, on April 4 to discuss its interest in AdvancePierre. On April 4, Tyson again contacted Oaktree to offer between $36 and $38 per share and agreed to the $200 million in relevant tax benefits. The board rejected that deal but on April 9,  board member Hollis, also an Oaktree advisor, got Tyson up to $39 and mandated a site visit to the AdvancePierre’s facilities. The following day AdvancePierre’s board formed a committee to continue talks with Tyson Foods. The suit claims that Hollis was not an independent director but still allowed to be on the committee.

Tyson made its final offer on April 20 and the board accepted the terms on April 25, after having the deal reviewed by outside consultants.