Red Hudson’s Voting Pact Clinched Tyson Merger, SEC Documents Show

James T. “Red” Hudson, with more than 65 percent voting power in Hudson Foods Inc., signed a voting agreement with Tyson Foods Inc. that preceded the poultry companies’ $680 million merger pact.

Both agreements were filed recently with the Securities and Exchange Commission.

The filing discloses that Hudson personally agreed to the acquisition with Tyson Foods on Sept. 4, the day before the deal was announced. Tyson received a commitment from him to vote his shares in favor of the agreement, technically sealing the deal. Red Hudson has voting privileges over 9.6 million Class B Hudson shares, and each Class B share has 10 times the voting power of a Class A share.

In addition to a closing deadline of Feb. 28, the voting agreement stipulates that Red Hudson cannot solicit other offers but could terminate the voting agreement “if the Board of Directors … reasonably determines, based on certain specified standards, that a written, unsolicited proposal or offer is made for a business combination or similar transaction … which in more favorable … than the merger.”

Based on stock holdings listed in the agreements, Red Hudson will be the second-largest owner of Tyson Foods Inc. Class A stock when Tyson’s acquisition of Hudson Foods Inc. closes — probably late this year.

Hudson will own at least 4.6 million shares of Tyson stock, worth about $110 million as of Oct. 1. That’s about 4.9 percent of the 95 million Class A shares Tyson will have after the merger. Additionally, Hudson will receive almost $39 million in cash.

Hudson could have voting rights for almost 5.4 million shares of Tyson if he retains those privileges over stock owned by Charles Jurgensmeyer, Hudson Foods’ chief financial officer, and a former Hudson Foods executive.

Only Invesco, a British corporation, owns more Class A Tyson Foods stock, about 6 percent. Don Tyson and Tyson Limited Partnership own almost all the 68 million shares of Tyson Foods’ Class B stock.

There is still a possibility that another firm could make a higher bid for Hudson Foods, but Stephens Inc. analyst Shane Glenn says the odds aren’t favorable of another suitor coming forward.

“The appreciation in Tyson stock [from $21.38 before the announcement to $23.88 last week] following the announcement of the merger makes that less likely,” Glenn says.

But at least one industry source, who asked not to be identified, says it is possible another suitor could attempt to bid higher for Hudson Foods. He bases his opinion on the fact that Tyson Foods’ stock rose $2 on the day of the announcement and the fact that several analysts have projected that the acquisition will increase Tyson Foods’ earnings.

“That indicates to me that there is some upside room left in the price,” the source says. “The market is pretty smart. The market is telling you that if Tyson bought at that level, they made a pretty good buy.”

$5 Million in Costs

Should Hudson decide to accept another unsolicited offer, Hudson Foods would have to pay Tyson $27.5 million, according to the SEC filing. If Tyson Foods decides not to follow through with the deal, it will be required to pay $15 million to Hudson Foods. Tyson estimates it will spend about $5 million to execute the purchase of Hudson Foods.

Glenn considers the acquisition to be a “wash” for Tyson in the short term, meaning the Springdale poultry processor probably won’t realize a significant profit or loss from the deal initially.

“I think the value of the merger will be realized over time because of the difficult operating environment the industry still faces,” Glenn says. “As processors emerge from that environment, I think the true value of the acquisition will be realized. I think that’s more in the future, probably fiscal 1998.”

A Merrill Lynch Pierce Fenner & Smith Inc. analysis of the acquisition indicates it will not dilute Tyson Foods’ earnings.

“Tyson poultry acquisitions have consistently exceeded earnings estimates and we think that this will be no exception,” the report says. “We see the strengths of both companies increasing profitability internationally as well as domestically.”

At recent Tyson Foods’ stock prices, Merrill Lynch estimates the deal at almost $700 million.

Golden parachute plan

Hudson Foods’ executives will be well taken care of after the acquisition. The firm’s golden parachute plan allows Red Hudson, his sons Michael and James, Jurgensmeyer and Donald Perkins to receive $100,000 a year for the next 15-25 years. Norbert Woodhams, president of Hudson Foods’ speciality foods division, will receive $70,000 annually. Hudson Foods has similar agreements, at lower salaries, with 25 other former or current employees.

Red Hudson could lose access to some of the best benefits among corporate executives in the state. In 1996, he received $3.1 million from Hudson Foods for aircraft leases; $188,000 for a grower contract at two farms; and $8.2 million for a premium payment on a life insurance policy.

It remains unclear how many of Hudson Foods’ 325 employees at the Rogers headquarters will be retained by Tyson Foods, but administrative jobs typically are the first ones to be eliminated in major mergers. Hudson Foods has about 11,470 full-time employees nationwide in Rogers and at 12 processing plants.