Late last month Sanderson Farms Inc. (SAFM) said its board unanimously rejected a hostile takeover bid from Durational Capital Management LP that it said substantially undervalued the company.
The Laurel, Miss.-based poultry producer issued the statement immediately following a report Thursday, Oct. 29, that it received a $142 a share, or near $3.2 billion, takeout bid from Tyson Foods Inc. (TSN), the second-largest processor of chicken beef and pork, and Durational Capital. Sanderson said it had not received a proposal from both Tyson and Durational, only one from new shareholder Durational on its own.
A source said an activist investor could be examining Sanderson’s board and considering whether to launch a campaign. Should an activist or Durational launch a director contest, it would need to do so by a Nov. 15 board candidate nomination deadline for an annual meeting expected in February.
At the very least, a bidder or activist could launch a director contest to drive an acquisition bid forward, considering Sanderson’s board situation. According to relational mapping services company BoardEx, a sister company to The Deal, a number of the company’s 14 directors are overtenured.
Sanderson’s lead independent director, Phil Livingston, 77, has been on the board for 32 years, according to BoardEx. In addition, directors John Baker, 79; Gail Pittman, 67; Beverly Hogan, 69; John Bierbusse, 65; Fred Banks, 78; and Toni Cooley, 60, have served for 27, 18, 17, 15, 14 and 14 years, respectively, according to BoardEx.
Even so, there are limitations to any director fight. Sanderson’s board is staggered, with only a minority slate of five incumbent directors up for election at the company’s 2021 election. As a result, an activist or unsolicited bidder couldn’t take control of the board and force it to consider an unsolicited offer.
Also, only Baker and Bierbusse of the five are independent directors with longish tenures. Other board members up for election have much shorter tenures.
In addition, the company, whose food services business to restaurants has been affected by Covid, has taken steps to appease shareholders. On Oct. 22, Sanderson extended its stock buyback program to repurchase 2 million shares to Oct. 22, 2023. On Sept. 24, Sanderson reported hiking its quarterly dividend to 44 cents per share, an increase of 12 cents.
In a note, JPMorgan Chase & Co. analysts cited a report noting that Tyson was no longer involved but Durational is still pursuing Sanderson Farms “perhaps with a higher bid” and “alone or with another partner.”
JPMorgan analyst Ken Goldman noted in his report that at the right price Sanderson CEO Joe Sanderson, 72, would be willing to sell. The chief executive has been on the board for 37 years, according to BoardEx.
“Sanderson has no obvious heirs to take over the business, and while he remains one of the more thoughtful and involved CEOs we work with, he is 72 years old and has led the company for nearly 23 years,” Goldman said.
Goldman said, however, he didn’t believe $142 a share “or anything close to it” will get the job done, adding that “if Durational or another buyer is willing to pay well in excess of $175 a share, then we think something could take place.” Sanderson’s 52-week high is $179.45 a share, and the stock closed Tuesday at $129.15.
In addition, questions remain about whether Durational has the wherewithal to complete an acquisition of Sanderson, which is the third-largest poultry producer in the U.S. and the only Fortune 1000 company headquartered in Mississippi. In January 2019, Durational and partner Jordan Co. acquired Bojangles Inc., a chain with about 750 locations. Durational did not return requests for comment.
Separately, a combination of Tyson, the No. 1 chicken producer in the U.S. with Sanderson would likely raise antitrust risk in Washington. “Though a combined TSN-SAFM would have only a ~30% share, there are not many other large companies to compete with,” Goldman reported.
The other large U.S. chicken processor is Pilgrim’s Pride Inc. (PPC), which has a 7% to 8% market share, he noted.
Centerview Partners LLC’s Kenneth Berliner and Nolan Scaperotti are Sanderson’s financial advisers, and Wachtell, Lipton, Rosen & Katz partners David Katz and Alison Preiss, Fishman Haygood LLP and Brunini Law Firm are the company’s legal counsel.