It's crunch time for Archer Daniels Midland Co. Following the Aug. 27 admission by two Japanese companies, Ajinomoto and Kyowa Hakko Kogyo, and one Korean company, Sewon, that they conspired to fix the price of the food additive lysine, the U.S. government is closing in on ADM, the alleged fourth member of the ring and its main quarry, and two ADM executives.
Faced with a Sept. 17 government target for criminal indictments, ADM lawyers are in the throes of plea-bargaining. In their attempt to end the four-year federal probe, ADM and its directors have opted to bargain on behalf of the Decatur (Ill.) agribusiness giant, exposing the two senior executives at the heart of the investigation to potential prison terms. While refusing to comment on the plea talks, director John H. Daniels, former ADM chairman and a member of the board's special committee on the probe says: "Our only responsibility has been to do the right thing for shareholders and get this behind us." Legal sources expect indictments against Vice-Chairman Michael D. Andreas--son of Chairman Dwayne O. Andreas--and Group Vice-President Terrance S. Wilson.
Lawyers for ADM are likely to seek not only a settlement on lysine, but also on two other federal probes into alleged price-fixing of citric acid and high-fructose corn syrup. Those familiar with the government's lysine case say prosecutors will push for far tougher penalties than those meted out to the foreign companies and three of their executives, who will testify against ADM as part of their pleas. The Japanese companies each paid $10 million. Sewon's fine will be determined by the courts. The foreign execs must pay $50,000 to $75,000 each. For Andreas and Wilson, the government is likely to ask for the maximum fines of $350,000 each and three years in prison. ADM may face a sizable penalty: Although the government can opt for either a maximum $10 million price-fixing fine or a figure tied to the alleged gains, it is expected to choose the latter, going for fines up to $100 million.
For ADM, the fines and possible jail terms are a blow, but not one it can't overcome. The company currently is sitting on more than $1 billion in cash. More significant is the fact that the probe--which became public with FBI raids on ADM offices in June, 1995--may finally create cracks in the tight control of longtime Chairman Dwayne O. Andreas, 78. By plea-bargaining, company lawyers will, in effect, cut loose the younger Andreas and Wilson, who heads the corn-processing unit. Both men were placed at the center of the alleged price-fixing scheme in secretly taped meetings from June, 1992, to June, 1995. Sources familiar with the probe say they may be put on leave if they are indicted.
If the execs are forced out, the race to succeed Andreas will heat up. Among the contenders are Vice-Presidents G. Allen Andreas Jr.--Dwayne's nephew, credited with building ADM's European operations--and corn-processing executive Edward A. Harjehausen. Big investors hope a coming board overhaul resulting from the probe will make ADM more responsive to shareholders. At its annual meeting on Oct. 17, all management insiders except Dwayne will step down, and three outsiders will join. The board will shrink to 12 from 17.
The company's last-minute talks with the government reflect a scramble to resolve a series of complicated issues. First, say sources familiar with the strategy of the board and its lawyers, ADM wanted to resolve civil suits stemming from alleged price-fixing. In July, the company agreed to pay $25 million to settle many of the lysine suits. It is still negotiating on suits over citric acid. Although lawyers for ADM and the executives have known since late July of the likely criminal indictments, there were few serious stabs at negotiations until mid-September. Now, board members on a special legal committee have said publicly they'd like to make a deal. Yet the result could pit father against son.
One measure of the ADM probe's importance to the government is its hard-line stance. Following the plea agreements with the foreign companies, Joel I. Klein, head of the antitrust division of the Justice Dept., said "criminal collusive behavior that harms U.S. consumers will not be tolerated."
Yet without the overseas companies' pleas, such a tough approach wouldn't have been an option. Legal sources say the lead Justice Dept. prosecutors--Scott R. Lassar, First Assistant U.S. Attorney, and James M. Griffin, head of the Chicago antitrust division--badly needed more evidence after investigators had little success with ADM insiders. More damaging, the credibility of government mole and former senior ADM executive Mark Whitacre was undercut a year ago, when he admitted taking $6.5 million from ADM in a phony invoice scheme he claims ADM authorized. The new witnesses have provided fresh evidence of price-fixing and have agreed to testify against ADM.
Even as this endgame approaches, the cloud of uncertainty hanging over Archer Daniels Midland remains--deal or no deal.