Potential buyers showing interest in Agriprocessors
A bankruptcy trustee overseeing Agriprocessors indicates "no fewer than 12" parties have voiced interest in buying all or part of the struggling kosher meatpacking company.
In a report filed this week, trustee Joe Sarachek described his activities since being named Chapter 11 bankruptcy trustee late last month. "We do have a lot of interest," Sarachek confirmed Friday. He said the 12 interested parties came forward without any serious attempt to market the business. They included Quantum Capital Partners of Boca Raton, Fla., the first investor to express interest to the bankruptcy court in buying part of Agriprocessors on Dec. 12.
"They're out there," Sarachek said of Quantum. "They're not the primary party I'm talking to." Quantum's plans included paying off the company's creditors and leaving some equity in the hands of the Rubashkin family, Agriprocessors' cur rent owners.
One of the concerns to potential buyers has been action by the U.S. attorney for the Northern District of Iowa seeking forfeiture of many company assets as ill-gotten gains of criminal activity, Sarachek added. Without assurances that company assets won't be taken by the government with court approval, it could be hard for the company to find a buyer.
Such a forfeiture action against a company in bankruptcy is unusual in Sarachek's experience.
In his report, Sarachek said the maximum recovery to creditors of Agriprocessors "can only be achieved through an open, fair and transparent 363 (bankruptcy-supervised) sale process before the court." Sarachek said Agriprocessors owes about $6 million to livestock and poultry sellers for animals already delivered. His staff and attorneys are working with the U.S. Department of Agriculture to determine which claims the company is obligated to pay under the Packers and Stockyards Act. They expect to file a motion seeking payment of such claims "in the near future." Funding to resume limited chicken processing at Agriprocessors technically runs out this week, but Sarachek said sufficient funds remain to continue operating through Monday and even a little further. The company has gotten two emergency cash infusions totaling $3.37 million from First Bank Business Capital of St. Louis, its largest secured creditor.
Since production resumed Dec. 3, Agriprocessors has sold about $948,000 worth of merchandise and collected about $3 million in accounts receivable, Sarachek wrote.
The company has re-employed about 200 workers in Postville and another 11 at a distribution center in New York.
Sarachek is expected to seek court approval for further borrowing from First Bank at a bankruptcy court hearing Monday afternoon.
Note that earlier this past week, Sarachek's counsel said forfeiture would pose no problem for buyers, and several bankruptcy attorneys have told me the same.
So what does this mean?
I think the buyers who have stepped forward have all offered less money that Sarachek and the bank want to take – all, that is, except Quantum.
Saracheck called Quantum's offer "half-baked," but that was only after I exposed Quantum's unusual business structure and its link to money laundering.
I told you before that Sarachek, when I asked him what precautions he was taking to prevent the Rubashkins from brining in washed money to "re-buy" their company, said that all buyers have to file a statement with the court. That's it? I asked him. You're not doing anything past that, no due diligence to try to head off this type of fraud, fraud that would eventually put Agriprocessors in forfeiture and Postville in ruins? He did not answer.
The dirty secret here is that Agriprocessors is worth far less than officially valued.
Because value depends on what buyers are actually willing to pay, not on the book value of the goods being sold.
So, for example, a piece of used equipment may be valued at $100,000 in good condition. But, if the owners have the reputation of not doing proper maintenance or of dishonesty, the actual value for that equipment could be much lower.
Think of this like a used car that seems to be in very good condition on inspection, but whose owners are known not to regularly change the car's oil.
The Blue Book value may be $10,000. The current market value for that make and model may be $9,250. But the actual value for this car may only be $8,000, because the owners are known to be lax in caring for it.
What is true for cars is much more true in the closed, insular world of meat packing and food production. Worse yet, the Rubashkins have the reputation of not changing the oil.
Added to this is the very real problem of who would buy the plant itself.
Agriprocessors is too small to be used as a standard non-kosher facility. That means any buyer has to be doing a type of specialty production, be that halal, organic, or kosher.
In effect, this means another kosher meat producer or wannabe kosher meat producer will probably have to buy the plant.
But these potential buyers are not desperate. The market can be entered or expanded in lots of ways. Buying the remains of Agriprocessors is only one of them.
That means it is a buyer's market.
Add to that the potential forfeiture and other legal uncertainties.
All this drives the price way down, so far down that the major secured creditor, the bank, does not want to sell.
So Agriprocessors runs at 20% (or perhaps less) of capacity to create the fig leaf of viability while Sarchek and the bank look for a miracle – a buyer naive enough to pay too much money for Agriprocessors.
At the same time, Sarchek seems to be moving to sell of parts of the company. The Florida distributorship which is (or is not) part of Agriprocessors being the likely candidate to end up with Agriprocessors' frozen inventory and its New York distribution. (The New York distribution will most likely be run out of a new rented facility in New Jersey.)
The Postville plant and much of its hardware will probably languish.
Who will buy Florida and the frozen inventory?
Bankruptcy is all about money – not about ethics or aggrieved workers or preventing fraud.
The bank wants to get paid and it is Sarachek's job to get it and the other secured creditors the money. If he can get the diner or the local feed store or a few workers paid, all the better.
Quantum's offer was clumsy. The next Quantum-like offer will surely be less so.