Land O'Lakes buying Purina Mills feed company
Ann Merrill
Star Tribune
Tuesday, June 19, 2001
Land O'Lakes Inc., the rapidly expanding Arden Hills-based agricultural cooperative, is spending $360 million to acquire Purina Mills Inc., one of the nation's largest
animal feed companies.
Land O'Lakes intends to pay $23 per share in cash for the 10 million shares of Purina Mills stock. It also will assume $130 million of the
company's debt. Purina Mills' stock closed at $22.19 Monday, up 15 percent on heavy trading. The stock traded as low as $7.84 in February, but
has been climbing in recent weeks following the company's confirmation that it had a suitor.
The purchase of St. Louis-based Purina Mills is significant for Land O'Lakes as it continues its quest for size and efficiencies in the consolidating
agribusiness sphere. "We want to have core businesses that have the size and scale to compete and win in the 21st century," Jack Gherty,
president and chief executive at Land O'Lakes, said in an interview Monday.
Land O'Lakes is a farmer-owned food and agricultural co-op with 7,000 employees. It makes the nation's top-selling brand of butter and has
fertilizer, feed and seed operations.
Deal maker
In the past two years, Land O'Lakes has made several large deals. Working with Cenex, it spent $361 million to acquire the distribution arm of a crop protection,
fertilizer and seed products company in Iowa. A year ago, it bought the assets of Madison Dairy Produce Co., the largest butter production facility in the Midwest.
In February, it reported its best annual earnings since 1996, with sales of $5.8 billion and net earnings of $103 million. It has received a commitment for financing the
Purina Mills acquisition from JPMorgan, the New York City-based investment banking firm.
Land O'Lakes' interest in Purina Mills is an indication of the company's need to grow by acquisition in the "mature feed industry," said George Dahlman, analyst at
U.S. Bancorp Piper Jaffray in Minneapolis. The Purina label is a strong brand that "carries a lot of weight," he said.
Dahlman said that the post-acquisition challenge will be to integrate Land O'Lakes and Purina Mills. "It can be tricky maneuvering. A lot of deals are great at the
corporate level," but stumble at the store-front level, he said.
A recent joint venture with Farmland Industries has elevated Land O'Lakes to the top of the feed industry, with annual feed sales of more than $1 billion. Purina Mills,
also a leading player, has sales of $840 million. It's estimated that the combined companies would have the capacity to produce, store and distribute about 15 million
tons of feed annually, about 13 percent of all the domestic business.
The pairing of the two companies "will create a more competitive national feed system, well-positioned to contribute to the long-term success of Purina dealers and
customers," Purina Mills CEO Brad Kerbs said in a prepared statement.
Purina Mills, which emerged from bankruptcy reorganization a year ago, operates 48 plants, including one on Hiawatha Avenue in Minneapolis, and employs 2,300
workers. Its network of 4,200 dealers, which sell Chow-brand feed and other products to farmers, will remain in place, as will its well-recognized red-and-white
checkerboard logo. The company will retain an office in St. Louis, including a research and development facility, but an undetermined number of corporate and
administrative jobs are expected to be lost.
Gherty said that the benefits of the purchase will come from transportation and supply-chain efficiencies, such as bulk buying of vitamins used in making feed. The
co-op intends to fold Purina Mills operations into Land O'Lakes' Farmland Feed LLC unit following the acquisition.
Antitrust review
The purchase will require government antitrust review, but Gherty said he does not expect any stumbling blocks. Purina Mills' dealer network is strong in the Southwest
and East, where Land O'Lakes has little presence. In addition, he said, the number of feed mills and ease of entry into the industry remain high.
Purina Mills shareholders will be asked to vote on the sale soon. GSCP Recovery Inc., a major shareholder with a 28 percent stake, has expressed support.
Minnetonka-based Cargill Inc. and a subsidiary hold an 8 percent stake.
Mark Klein, spokesman for Cargill, said the company would not comment now on whether it supports the Land O'Lakes deal. "At the time Cargill bought the shares,
we said it was an investment. That's still our comment," he said.
What about the idea that Cargill might offer a competing bid for Purina Mills?
"We don't comment on speculation," Klein said.
Purina Mills, once a unit of St. Louis-based Ralston Purina, was sold to Koch Industries Inc. in 1998. That same year, the company took a $20 million hit related to
falling pork prices.
In October 1999, Purina Mills sought protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. The reorganization gave bondholders 42 cents on the
dollar for their investments and led to the distribution of new common stock. Koch Agriculture Co. held onto a small stake in Purina Mills but since has divested all of
its holdings.
Ralston Purina retained the Purina Dog Chow and Purina Cat Chow brands when it sold Purina Mills. Earlier this year Ralston Purina agreed to be bought by
Geneva-based Nestle SA for $11 billion.
-- Ann Merrill is at amerrill@startribune.com .
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