Gold Kist Rejects $20 a Share Offer From Pilgrim’s Pride
Yesterday, the board of poultry producer Gold Kist (GKIS) rejected a $20 a share offer from rival Pilgrim’s Pride (PPC):
“(The) Board of Directors has rejected as inadequate Pilgrim’s Pride Corporation’s unsolicited tender offer to acquire all outstanding shares of common stock of Gold Kist at a price of $20.00 per share, and strongly recommends that its stockholders not tender their shares.”
Gold Kist’s President and CEO John Bekkers explained the decision:
“Our Board unanimously determined that the offer is inadequate and does not fully reflect the value of Gold Kist, including the Company’s strong market position and future growth prospects… We have successfully positioned ourselves to take advantage of attractive growth opportunities in key markets and are confident in our prospects.”
The board claims it is continuing to explore strategic alternatives. The reasons outlined in support of the board’s decision are fairly standard. However, one point does ring true: “(the offer) was made at a time when Gold Kist’s stock price was temporarily depressed following a recent cyclical downturn in the industry.”
Some of you may remember I wrote about the offer when it was first made public (which was quite some time after Pilgrim presented the offer to Gold Kist’s board).
My post didn’t go over well, because I was misunderstood – no doubt because my writing was sloppy and unclear (as can often happen when employing a medium that allows for such a quick transmission of ideas). In my original post, I did not intend to say that individual investors who own shares of Gold Kist would be better off taking stock rather than cash. As they could trade their cash for stock anyway (i.e., they could buy shares of Pilgrim’s Pride for themselves), individual investors are obviously better off receiving that most liquid of assets – cash.
What I meant to say was that Gold Kist’s board should have requested a show of good faith from Pilgrim’s Pride before sitting down to discuss possible terms for a friendly deal. The sign they should have demanded was an all-stock offer of comparable value (based on current market prices) to the $20 a share all-cash offer.
Why? Because an all-cash offer allows Pilgrim’s Pride to exploit any general (and temporary) undervaluation of poultry producers in the stock market. Pilgrim’s Pride made an offer that was more than 50% above the quoted price for shares of Gold Kist. However, if all poultry producers are currently undervalued, that premium may not even make up for the market’s irrational pessimism towards the poultry companies.
Conversely, an all-stock offer would have the effect of eliminating any general (i.e., non-company specific) market pessimism. If Pilgrim’s Pride made such an offer, it would prove that they were not attempting to profit from avian flu fears; but, rather saw Gold Kist itself as a bargain – either because of alleged synergies, or because the company was simply undervalued relative to the other poultry producers.
In essence, an all-stock offer would represent a …
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