U.S. Premium BeefDoug Reynolds, a Reynolds Advisory Partners Managing Director, was hired by US Premium Beef LLC after USPB’s strategic partner, Farmland Industries, filed for bankruptcy. Farmland’s bankruptcy left USPB with the unhappy prospect of potentially having USPB’s primary asset, (a 29% interest in National Beef Packing Company) sold out from underneath it to pay Farmland’s creditors. This would have imparted double damage to USPB. In addition to the risk of selling off its primary asset, USPB co-op members would potentially forego the benefit of sharing in the processing profits from their $1 billion per year of cattle sold to National.

Steve Hunt, CEO of USPB, had worked for eight years to pioneer United States’ first large scale integrated beef company. The beef industry has a long and storied history of processor /producer conflict. Steve overcame this legacy through using his detailed industry knowledge, charismatic nature and patience combined with a dogged determination to create USPB. Steve raised $38 million from USPB’s 450 co-op members, then borrowed $35 million in order to combine USPB’s ¾ of a billion per year of cattle supply to National’s state of the art facilities, run by the best management team in the industry led by National CEO John Miller. Given all he had gone through, Steve was determined to protect USPB from Farmland’s bankruptcy.

The optimal solution for USPB was to acquire Farmland’s 71% interest. This would sustain the lucrative sourcing arrangement and allow USPB to control National’s destiny.

Acquiring National would not be easy. First, Farmland’s creditors’ committees viewed National as “their” asset with which they could sell to the highest bidder. Secondly, USPB was a relatively small private co-op and needed an equity partner willing to invest almost $50 million for a minority interest plus an additional $425 million of committed debt financing to put forth a competing bid. Furthermore, a number of strategic buyers had publicly announced their aggressive interest in acquiring National in an effort to scare away USPB and other buyers.

Working with Steve and John over a fifteen month period, Mr. Reynolds helped create and implement a strategy for USPB to: (i) demonstrate that despite its small size and co-op status, USPB could raise the equity and debt capital necessary to purchase National, (ii) defend USPB’s rights under its joint venture agreement with Farmland, (iii) negotiate with the creditors’ committees an attractive acquisition price and (iv) simultaneously raise the minority equity, senior bank financing and high yield debt capital to make it all possible. If these complications were not enough, during the process, USPB was forced to file suit against the Farmland in Delaware Chancery Court to protect its rights under its joint venture agreement and North America’s first reported case of Bovine Spongiform Encephalopathy (often referred to as “Mad Cow’ disease) was reported in Canada.

Mr. Reynolds and his banking team set up offices in USPB ‘s headquarters for almost a year and ultimately led a thirty day “death march” conducting near round the clock negotiations between USPB and the creditors committees representatives and advisors, minority equity investors, senior lenders, high yield underwriters and National management.

The team's efforts led to a fully committed transaction whereby virtually all of USPB’s goals were achieved: (i) USPB agreed to purchase Farmland’s interest in National via a “stalking horse” purchase agreement at an attractive valuation (4.25x EBITDA), (ii) $50 million of equity was raised on a minority basis from both an outside strategic investor and from National management with an appropriate governance structure negotiated among USPB and its two new partners, (iii) $265 million of committed senior bank financing and $160 million of high yield financing debt commitments were negotiated providing the remainder of the capital commitments necessary to fund the acquisition and (iv) advantageous Section 363 auction procedures were negotiated to allow USPB to acquire the asset at the 363 bankruptcy auction uncontested.

At Reynolds Advisory Partners, we pride ourselves on helping our clients achieve their goals. In this case, it was remarkably rewarding to assist a talented client with only six employees in partnership with the top three managers from National to acquire control of a company with 6,000 employees and over $3.2 billion in revenue.

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